Negative and Positive Aspects of Multinational Corporations - Essay Example

Negative and Positive Aspects of Multinational Corporations Negative and Positive Aspects of Multinational Corporations Multinational corporations are large industrial corporations with wide network of branches spread out in a number of countries but managed from one country. The characteristics that distinguish multinational corporations from other organisations are: they are located in many countries, their worldwide activities are centrally controlled by the parent company, and they are large in size. There are various ways through which multinational companies enter international markets. Such entry methods include exporting, wholly owned subsidiaries, FDI, joint ventures, mergers and acquisitions. The operations of multinational corporations mainly originate from developed countries and extend beyond their own countries, and cover both developed and less developed economies. Multinational corporations play a crucial role in globalisation. They contribute to both positive and negative impact on economies involved in international business. Anti-corporate people argue that multinational companies reduce competition and enterprise while pro-corporate people claim that multinational corporations improve the economic development of underdeveloped countries. In most cases, multinational corporation originate from developed and the emergent economies and enter underdeveloped and other developed countries, causing negative and positive impacts in such economies. Generally, multinational economies cause more advantages than disadvantages, and can be considered as an important element of a globalised world. One of the advantages of multinational corporations is that it reduces unemployment in host countries. Noland (2007) suggests that multinational corporations could reduce these unemployment rates and improve businesses. Unemployment in less developed economies world has led to impoverishment, discontent, militancy and repression. Multinational corporations can come into play by providing opportunities of employment for the host countries; hence increasing the welfare and standard of living for the local communities. Through economic integration, multinational corporations are able to transfer and disseminate technological knowledge and innovation as well as information and capital into their host countries. The local capacity of building the economy in less developed countries is uncertain. Foreign multinational corporations entering the local markets of such countries may bring in knowledge, information, technology, capital and innovation to build the economy and reduce uncertainties experienced by businesses in the local markets. The main advantage of multinational corporations is that they lead to increased employment and participation of the youth in the labour market. This increases the productivity of various economies and encourages innovation and economic growth. Noland (2007) suggests that foreigners account for the highest number of employment opportunities in less developed countries. Foreign multinational corporations also cause the expansion of labour intensive manufacturing and service sectors in the host countries. This consequentially leads to increased employment. Countries may also benefit from financial flows caused by multinational corporations. These financial flows can be used to develop new technologies in order to accelerate growth and improve business productivity in the host country. Another advantage of globalisation is that it leads to intellectual development and access to knowledge made possible by multinational corporations entering a given economy. Multinational corporations in developed countries seek production capabilities in less developed and developing countries. As a result, such countries benefit from the activities of such multinational corporations by transferring their technology and labour through the establishment of customer service centers to serve multinational corporations from the developed countries. Multinational corporations have also caused a great impact on cultural issues across the world. As multinational corporations enter the foreign countries, they come with new cultures which influence the cultures of locals. This is caused by the rapid transfer of knowledge and travel by multinational corporations. Furthermore, as multinational corporations employ local labour in the host country, they will have to communicate with them through a common language. Therefore, the local people will learn international languages which enable them to be integrated in the global world and explore opportunities in countries outside their own. Multinational corporations and globalisation in this perspective removes cultural barriers. However, the cultural influence of globalisation may also cause negative impacts on the local communities of the host country. This is because globalisation may introduce new cultures from foreign countries which may erode the cultures of local communities. In terms of economic development and improved business performance, the operations of multinational corporations lead to improved economic development in the host countries and the home country. This observation is in line with the economic development theory which suggests that multinational corporations’ investments are “prime pumps” which set the stage for the economic takeoff of less developed nations. Through the infusion of technology and capital, multinational corporations enable developing countries to develop economically. They also spread prosperity and create the opportunity and conditions for less developed countries to embrace democracy and respect (Clarke, 2013). Multinational corporations may bring in different ideas of prosperity and enable the local communities to improve their approach in terms of economic, political and social policy-making. Another advantage of multinational corporations is that they generate large amounts of profits and utilise good technologies to encourage research and development in the host countries (Dasgupta, 2004). Profits and technological capital can be used to enhance business operations and production activities that are always risky and costly for small firms in the host countries. The size and scale of operation of multinational corporations also leads to lower average costs and prices for local consumers. Libertarians also argue that globalisation enhances increased global economy through the involvement of power blocks (Dasgupta, 2004). If multinational corporations from foreign countries are embraced, they enhance mutual trust and respect between the host and the home country. Furthermore, multinational corporations create global markets which can act as a source of products for local consumers and companies. Businesses in the host countries can get products cheaply from large multinational corporations, and then sell such products to local consumers at a profit (Geiersbach, 2010). The profit can then be used to grow the business, and as a result the entire economy grows. Influx of knowledge and information from the MNC home countries also enhance the development of new ideas for business and economic growth in the host country. Multinational corporations also provide management experience, technological skills and entrepreneurial abilities that can be used by local business firms and individuals to improve their businesses and generate more income. These capabilities can be transferred to the locals through training programs. Taxes generated by the government from MNCs may also enable the host countries to generate financial resources that can be used to fund government development projects. In this regard, multinational corporations assist in filling the gap between targeted government tax revenues and taxes raised locally by the government. In other words, income generated by multinational corporations through taxes can be used as part of government spending. For the home countries, multinational corporations are considered to be advantageous because they generate foreign exchange earnings which may fill their trade gap. Foreign exchange trade gap may be filled by foreign investments of multinational corporations because multinational corporations increase the inflow of foreign exchange revenue by generating a positive net flow of exports earnings. There are also key disadvantages of multinational corporations for businesses and the economy of the host and home countries. The North-South model, also known as dependencia theory, suggests that multinational corporations hinder rather than boosting economic development of developing countries (Paul and Barbato, 1985). This theory suggests that MNCs do not bring the needed capital to developing countries, but instead harness the available capital in the host country. The profits of those MNCs go to their home countries while the locals remain with low pays, causing them to stagnate in terms of development. Furthermore, multinational corporations destroy small firms in the host countries by offering low prices using economies of scale and using technologies to produce high quality products which can be demanded by consumers than the products produced by the local firms. For instance, large supermarkets from the developed countries squeeze the margins of small retail shops in the less developed countries. Essentially, economies of scale enjoyed by multinational companies push local companies out of business. Multinational corporations may also cause pollution in the host countries as they pursue profits. Multinational corporations enter the global market with the sole intention of making profits, neglecting the fundamental objective of sustainability in the host countries. Some multinational companies use non-renewable energy without any concern with renewable sources; hence causing a threat to the environmental sustainability of the host countries (Clarke, 2013). In conclusion, it is clear that multinational corporations have significant advantages and disadvantages. They influence the culture of host countries. They also destroy small local firms and misuse labour with small wages. However, these negative effects can be overcome by providing proper legislations to avoid pollution and encourage environmental sustainability by MNCs as well as setting tariffs and barriers to protect the local firms. As a result, a well regulated global business will reap the benefits of multinational corporations through increased economic growth, increased employment and higher standards of living for the communities that engage directly or indirectly with the multinational corporations. References list Clarke, I.M. 2013. The spatial organisation of multinational corporations. London: Taylor and Francis. Dasgupta, S. 2004. The Changing face of globalisation. Thousand Oaks: Sage Publications. Geiersbach, N. 2010. “The Impact of International Business on the Global Economy.” Business Intelligence Journal, vol. 3, No. 2, pp. 120-128. Noland, M. 2012. Globalisation with Arab Characteristics. YaleGlobal. Paul, K. and Barbato, R. 1985. “The Multinational Corporation in the Less Developed Country: The Economic Development Model versus the North-South Model.” The Academy of Management Review, Vol. 10, No. 1, pp. 8-14. Tausch, A. and Heshmati, A. 2012. “The Effects of Multinational Corporation (MNC) Penetration on the Global Political Economy. A Re-analysis of a Recur-rent Sociological Proposition with Contemporary Data.” Sociológia, vol. 44, no. 3, pp. 314-347. Read More