The Economic Development of the Host Nation - Case Study Example

Impact of Multinational Corporations on Developing Countries Name Tutor Course Institution Date Introduction Developing countries are an attraction for multinational corporations because they work on improving the economic status of the host country. Governments in developing countries are currently competing for the multinational corporations because they provide employment, are a source of technology transfer and are core in the economic development of the host nation through open international markets and increased revenue. Economic development is achieved through payment of salaries, exports and increased productivity. This research paper focuses on the economic impacts of three of these corporations in two or three host countries (Chor et al, 2008). Impacts of multinational corporations on host countries Shell/ Royal Dutch The royal Dutch group commonly referred to as Shell is a multinational cooperation that sells fuels, lubricants and food and household essentials on retail internationally.it is consisted of energy and petrochemical companies. Currently, it has more than 92,000 employees based in more than 100 countries. It was established more than 200 years ago in London and is now the second largest corporation in the energy sector with its headquarters in Netherlands. It is involved in the production, transport and marketing of oil and gas, sell of petrochemicals and has also has invested in renewable energy. Shell in Nigeria Nigeria is one of the investment points that shell is using in the production of oil. The oil in Nigeria was discovered in 1956 in the Niger delta region. This region supplies about 85% of all the country’s oil. The first exploration was done by Shell BP in 1958 and after gaining independence, the oil exploration was open to other investors. In 2010 according to Giuliani et al (2013), the Nigerian oil production was at 4 million barrels per day. The investment of Shell and other oil multinational corporations were a source of foreign direct investments (FDI). One of the impacts of shell business presence in Nigeria is the increase in employment and economic development. The economic development is achieved due to high revenues that are generated for the local government through the export of oil and other oil products. The exploration, production, transport and manufacturing of oil and other products has led to the rise in employment as more labour is required. It has also led to technological advancements due to the use of updated and more recent machinery that is required for the production processes which Nigeria would not afford without the foreign direct investment (Giuliani et al, 2013). Despite the fact that shell claims that all its activities are done in environmentally sensitive methods, the multinational corporation has hazardous environmental practices that have affected the natural environment of the Niger delta. These activities include the oil spills, deforestation and gas flaring. According to Abdul-Gafaru (2006), 95% of all natural gas that was extracted in 2000 was flared in a section of the Niger delta. Gas flaring leads to acid rain which is a source of water pollution that endangers the aquatic habitat and the ecosystem. In addition to that it releases gases such as methane that lead to global warming. Oil spills have reduced Nigeria’s mangrove forest. In summary, some of these multinational corporations are a source of pollution and regulations should be enforced. Shell in Ukraine The first shell operation s in Ukraine started in 2013 after the joint venture between Shell and a local company known as Nadra Yuzivskan that was signed. It involves the process of exploring and extracting shale gas that is found in the rocks. The Ukraine special report on energy and petroleum (2012) highlights that there are a lot of unexploited resources in the region. The exploration of these resources by shell will have the largest impact on the economy of Ukraine because it will stop importing of natural gas from Russia. In addition to this it will increase revenue generated and be a source of employment for some Ukrainian residents. It will also expand the market for the shale gas that is produced (Reed, 2013). Toyota Motor Company Toyota Motor Corporation is one of leading corporations that is leading in automotive industry and has headquarters in japan. It is a big employer of about 330,000 employees and was reported as the fourteenth company in terms of revenue generation. It is currently producing more than 10 million vehicles annually. In japan, it is the leading company ahead of Softbank. The corporation has expanded its networks through joint ventures in several developed and developing countries.it was founded in 1937 and its main products are SUVs and crossovers , luxury type vehicles and pickup trucks(Toyota, 2013). Toyota in China After realising the increase in market potential in Asian countries such as china, Thailand and India, Toyota has decided to focus its investments in the region. A recent analysis by Toyota has reported that the company is planning on improving its foreign development investment in china. Currently, it has the GAC Toyota Motor Company which is based in Guangzhou and is a joint venture between GAC group and Toyota motor company. In their bid to expand, the automating corporation is looking to build a new plant that will satisfy the increasing need for Toyota models that are fit for the Chinese market. It hopes to produce about 1 million units. The main benefits that china has gained form the joint ventures and alliances with Toyota are the fact that it is slowly becoming the largest auto market. The export of motor vehicles as well as motor vehicle parts has led to revenue generation for the country. In addition to that the development of the transport sector has been significant in easing the industrialisation process because of the ease of movement. In addition to that, the automotive industry has provided employment for many Chinese people. These three factors have been significant in economic growth of the country (Tang, 2009). Toyota in Indonesia Toyota started its ventures in Indonesia in 1971 and started production of the cars in 1977. This was achieved through a joint venture with Astra motors. According to Nkomo (2013), Toyota has reported an increase in sales in these regions as total sales increased from 199,000 units in 2008 to 409, 000 in 2012. This joint venture is being enhanced by plans by the company to invest about $1.3 million by 2018. The greatest impact of this multinational corporation is the need for research and development that helps in research and development in educational settings, increased revenue generation and increase in employment. Conclusion The role played by multinational corporations in developing countries cannot be undermined. The direct foreign investment that these corporations bring to the host country is very important in ensuring that there is exploitation of resources that the host country could not use if it was on its own. Apart from that, the corporations increase employment rates, increase imports and hence the economic status of the host country. The most paramount thing is for host countries to differentiate between the positive and negative impacts and enforce the right legislation to reduce the negative effects of the multinational corporations. References Reed, S. (2013), Ukraine Signs Drilling Deal With Shell for Shale Gas. Retrieved 21 sep 2014 from Selasa (2013) Indonesia, Toyota`s priority in developing countries,. Retrieved 21st Sep 2014 from Tang, R. (2009), The Rise of China’s Auto Industry and Its Impact on the U.S. Motor Vehicle Industry. Congressional Research Service. Toyota motor corporation (2013), Special Feature: Toyota's Efforts in Emerging Markets, Toyota annual report 2012. Abdul-Gafaru, A. (2006) Are Multinational Corporations Compatible with Sustainable Development in Developing Countries? Conference on Multinational Corporations and Sustainable Development: Strategic Tool for Competitiveness. Atlanta-Georgia Chor, D, Foley, F & Manova, (2008), Host Country Financial Development and MNC Activity. Bureau of Economic Analysis. Elisa Giuliani and Chiara Macchi (2013), “Multinational Corporations’ Economic And Human Rights Impacts On Developing Countries: A Review And Researchagenda”, Discussion Papers del Dipartimento di Economia e Management – Università di Pisa, n. 158(http:// http://www.dse.ec.unipi.it/index.php?id=52). Nkomo, T. (2013). Analysis of Toyota motor corporation. Harvard University. Trefis, T. (2012), Toyota Targets Developing Countries En Route To $90. Retrieved 21 Sep 2014 from < http://www.forbes.com/sites/greatspeculations/2012/08/29/toyota-targets- developing-countries-en-route-to-90> Worasinchai, L & Bechina, A, A.(2010) “The Role of Multinational Corporations (MNC’s) in Developing R&D in Thailand: the Knowledge Flow Between MNC’s and University” Electronic Journal of Knowledge Management Volume 8 Issue 1 (pp171 - 180), available online at www.ejkm com Ukraine policy dialogue special report, (2012), Natural Gas and Ukraine’s Energy Future, Ministry of energy and coal industry report. Read More