Transnational Corporations-Roles and Impacts in Global Economy - Research Paper Example

?Running head: Transnational Corporations Transnational Corporations-Roles and Impacts Insert Insert Grade Insert February 29, 2012 Transnational Corporations-Roles and Impacts Introductions The increased globalization that has been realized in the past, accelerated by factors like removed trade barriers, has prompted large organizations to expand their operations across the national boundaries in order to exploit the investment opportunities that may arise in these regions (Center for Study of International Development Strategies, n.d). This has led to the emergence and growth of several transnational corporations, especially after the World War II (Ietto-Gillies, 2012), that have now become some of the influential non-state global economic actors (Madeley, 1999; Nowrot, 2011). A transnational corporation (TNC) is a large business organization that operates in more than one country at the same time (Madeley, 1999, p.1; Ward, 2003). The transnational corporations have large revenues and can exercise more power than the individual states across which they operate. The companies ‘command enormous financial resources, possess vast technical resources, and they have extensive global reach’ (CSIDS, n.d, p.1). It has been noted that the combined revenue of General Motors and Ford is larger than the total Gross Domestic Product (GDP) for the countries in Sub-Saharan Africa (Ward, 2003). Comparable statistics and facts apply to other giant automobile corporations in the world and the individual economy of certain countries. It then beats logic in the kind of influence that these transnational corporations can have on the regional and global economy. As such, the transnational corporations have significant market power (Ietto-Gillies, 2012). They play significant roles and they have negative and positive impacts on the local, regional, and global development issues. This paper focuses on the roles that the TNCs play in shaping the global economy and the significant impacts that have been observed from the move to go global. The domination of these large corporations in different sector of the world economy is illustrated. The impacts of the TNC Significant developments have been recorded in the foreign direct investments by the transnational corporations since the 1980s with the TNCs taking different forms (Lundan, 2011, p.640). Significant increases have also been observed in the worth of the FDIs. For instance, the total global foreign direct investment in 2002 amounted to about $651bn (CSIDS, n.d). The developed nations are the major home countries for the foreign direct investors and the countries receive much of the proceeds from the investments. Much literature is available that focus on the impacts of TNCs on the home countries (the developed nations) and the literatures conclude that the outflows in Foreign direct investments relates positively with the net productivity in the home country (Sauvant, 2008, p.229). To the developing nations, the foreign direct investments provide the largest source of external finance to the home economy (CSIDS, n.d). Nonetheless, it is still debatable as to whether the transnational corporations help in developing this underdeveloped nations or the corporations are just in pursuit of their interest and do not care about their negative impacts on the society. In as much as the organizations may be considered sources of funds to the recipient nations, it is also worthwhile to note that the organizations are out to seek profits. Efforts to have a state of balance between these two conflicting roles (a profit-seeking organization and source of funds to the recipient country) lead to mixture of negative impacts of the transnational corporations on the national and regional economies. Potential benefits of TNCs One of the positive impacts of the TNCs is that they create employment opportunities in the recipient nations (CSIDS, n.d). Availability of cheap labor is one among the factors that drive a company to go global and establish its FDIs in other countries. The corporations make use of the local skilled or semi-skilled workforce. This improves the economy of the country through improving the living standards of the local employees. The other benefit of TNCs is the introduction new technologies and skills to the country (Sauvant, 2008; CSIDS, n.d). The local employees employed by the corporations are able to learn and acquire the technological skills that are used by the foreign company. The employees may later leave the corporation and be employed in another local organization taking along the technological skills. This is referred to as technology spillover (Sauvant, 2008) and the technology shall have been introduced more strongly into the economy. The introduction of modern technology will also enhance productivity in the country (Sauvant, 2008). The local organizations will apply better operational practices. Similarly, the TNCs provide a source of external finance to the developing economy. This infused money can help boost the development programs through funds towards the programs thereby reducing the load on the government revenue (CSIDS, n.d). The TNCs often enter into alliances or joint ventures by local private companies. In this manner, the TNCs tend to promote the development and strengthening of the private sector in a country leading to the country’s overall economic growth. The introduction of TNCs into an economy opens up that economy for international trade and the country is able to develop good relation with other foreign countries. The move improves the export ability of a country. Negative impacts of the TNCs on host economy In spite of the potential benefits that may be derived from the transnational corporations, the organizations can have some negative impacts especially to the developing nations. Firstly, it has been noted that almost a third of the world’s top a hundred economic entities belong to the transnational corporations’ (CSIDS, n.d). The corporations have the highest proportion of the world’s industrial capacity and technical skills (Ward, 2003, para.4). This provides the corporation with the power and control of economic issues in the local, regional, or global scene (Nowrot, 2011). They operate large international financial transactions and have the power to control the development of international fiscal and monetary policies (Ward, 2003). The TNCs alongside governmental, intermediate, and other nongovernmental entities are involved in the regulatory instruments that define the trans-boundary economic relations (Nowrot, 2011, p.807). The transnational corporations dominate almost all sectors of the economy in the world including the energy sector, automobile, agriculture, minerals and mining, chemicals, and the paper industry among others. Much of the worlds energy including oil, gasoline, and diesel are mined, refined, and distributed by these large TNCs (Ward, 2003, para.4). The corporations possess most of the world’s energy generating plants. They are the major players in the mining industry. Similar trend is seen in the automobile industry. The corporations are the major manufacturers and sellers of the automobiles and aircrafts (Ward, 2003, para.4). They are also the major dealers in software and other high-technology industries (Ietto-Gillies, 2012, p.263). The TNCs are the major manufacturers of information and communication technology appliances such as communications satellites, computers, and home electronics. The TNCs also have a key influence in global food production. They are the major growers of agricultural crops in the world (Ward, 2003). The corporations process and distribute a good proportion of the foods consumed globally. They also lead in the development of biotechnology products, medicines and pharmaceuticals (Ietto-Gillies, 2012, p.263), chemicals and in the manufacture and sale of paper. All these explain the kind of influence that the organizations have in the development of legislative provisions. The corporations ‘influence the respective domestic legal regimes of states by taking advantage of the differences in territorial regulation in their business decisions on where to make investments, how to disperse their assets, and choosing the suitable legal framework for their transactions’ (Nowrot, 2011, p.804). Moreover, the interest of these corporations is to seek profits and increase shareholder returns. With their power and economic influence, it will be unlikely that the corporations will pursue or even respect the interest of the host nations (CSIDS, n.d). The corporations are likely to be concerned with the maximization of their shareholder returns as opposed to focusing on the development issues in the host nations. In pursuit of their interests, the large TNCs have been associated with practices that are harmful to the environment resulting into other social and civil issues (CSIDS, n.d). The large organizations with their political influence have exploited resources irresponsibly in certain countries leading to civil unrest in protest of their existence and operations in these economies. Such problems have been recorded for the transnational corporations operating in Nigeria, Bolivia, India, and Ecuador among other nations (CSIDS, n.d). The other negative impact of the TNC is that they intensify competition for the domestic companies in a given economy. The TNCs are large and established industries. Thus, they are positioned to offer stiff competition and damage the small local organizations and companies that are emerging in the economy (CSIDS, n.d). This becomes drawback to the governments, who would want to nurture and capitalize on these emerging companies. Similarly, the TNCs are praised for creating job employments, infusing money to the economy, and introducing modern technology and skills as they get into a country. However, the companies may also leave with these benefits if they decide to terminate their operations in a given region (CSIDS, n.d). The employment opportunities that were created by a TNC will no longer be available if the TNC decides to withdraw its operations in a given region. The withdrawal could follow poor business environment that has been observed in the region leading to low profits or just losses. It would also occur due to other needs for organizational change. Besides, if the corporations leave when there were no technology spillovers, then they will have left with the skills and technology that they introduced into the economy. This also applies to the FDI inflows that were injected to the host nation’s economy while the TNCs were still operational. Conventionally Agreed Roles of the Large TNCs To this point, it is evident that the powerful TNCs have potentials to generate both good and bad to a given economy. In response to this understanding, various programs have been established to harmonize TNC and development in the host countries (CSIDS, n.d). The programs have social, moral, and environmental guidelines such as environmental assessment (Scott-Samuel & O’Keefe, 2007) that the TNCs are required and encouraged to practice. The programs also advocate for corporate social responsibility by the TNCs (CSIDS, n.d). Global Compact is one such program that was established by the United Nations to motivate the TNCs to practice CSR in a move to develop the host countries. The expected responsibilities of these large corporations are defined by some ten principles that have been developed through universal consensus. The roles of the businesses are focused in four different categories namely; human rights, labor, the environment and anti-corruption (CSIDS, n.d). With respect to the human rights, the TNCs are required to be forefront in the protection of internationally recognized human rights. The organizations are not supposed to be involved in any act of human abuse (CSIDS, n.d). Similarly, the corporations should ensure that there is no child labor or forced labor and that the rights of the employees to collective bargaining is respected (CSIDS, n.d). The employees in these organizations have to be allowed to exercise their freedom of association. Towards environmental conservation, the corporations are challenged to support environmental management programs and improvise and adopt technologies that are friendly to the environment (CSIDS, n.d). Recently, the TNCs have shown efforts to perform Health Impact Assessment (HIA) as part of their strategic environmental assessment (Scott-Samuel & O’Keefe, 2007, p.213). The organizations have to observe the guidelines provided by the environmental management agencies in the respective countries. Most recently, the large corporations have also been called upon to help fight and eliminate the vice of corruption. Conclusion The rise and increase of large transnational corporations has positive and negative impacts on the social, political, and economic developments in the regions and on the global scene. Since they are largely dominant in terms of revenue and technology, the transnational corporations do have influences in the political, social, and economic development in the countries and regions in which they operate. The corporations play significant roles in the globalization of the world’s economy. They benefit the home country as well as the host nation in terms of revenue through inflows and outflows. The developing nations benefit through acquisition of technology and skills as well as the creation of job opportunities. Nonetheless, the TNCs may act in pursuit of the interest fueled by their economic power to exploit the resources in the emerging markets and block the emerging companies in the local market. To help manage these, there are certain guidelines and principles developed by different regional and international agencies. These principles need to be followed by the TNCs. References Center for Study of International Development Strategies. (N.d). Perspective on Transnational Companies. Retrieved from http://www.grips.ac.jp/csids/perspectives/perspective03.pdf Ietto-Gillies, G. (2012). Transnational Corporations and International Production: Concepts, Theories and Effects. 2nd ed. Cheltenham: Edward Elgar Publishing Lundan, S. (2011). The Co-evolution of Transnational Corporations and Institutions. Indiana Journal of Global Legal Studies, Vol. 18 (2); http://proquest.umi.com/pqdweb?index=2&did=2520257701&SrchMode=1&sid=1&Fmt=6&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1330506030&clientId=29440 Madeley, J. (1999). Big business, poor peoples: the impact of transnational corporations on the world's poor. New York: Palgrave Macmillan Nowrot, K. (2011). Transnational Corporations as Steering Subjects in International Economic Law: Two Competing Visions of the Future? Indiana Journal of Global Legal Studies, Vol. 18 (2); 803-842. Ebscohost Sauvant, K. (2008). The Rise of Transnational Corporations from Emerging Markets: Threat or Opportunity? Cheltenham: Edward Elgar Publishing. Scott-Samuel, A & O’Keefe, E. (2007). Health impact assessment, human rights, and global public policy: a critical appraisal. Bulletin of the World Health Organization, 85(3):212-217. Ebscohost Ward, D. (2003). Transnational Corporations. Retrieved from http://www.halexandria.org/dward318.htm Read More