Multinational Corporations, Controlling Local Economy - Essay Example

? MULTINATIONAL CORPORATIONS of the School: Introduction Multinational corporations are large firms operating in more than one country. They usually have their headquarters in one country mostly the mother country. There are many multinational corporations in the world today. For instance coca cola, Barclays, shell, Guinness Breweries, DHL, IBM, MTN and others. The presence and establishment of MNC in developing countries has brought a lot of debates all over the world. Globalization-brought about by advancement in technology, transport, and communication- has made it possible for multinational corporations to spread very fast. MNC have both negative and positive impacts on developing countries. Below I have discussed the impacts starting with positive impacts and lastly negative impacts. Employment It is a common thing in developing countries for the governments to actively seek for foreign investors. Multinational corporations provide both direct and indirect employments to developing countries which is a major challenge in these countries. Banking and telecommunication companies are some of the most common companies which have developed over large regions. Due to the size of these companies they create more job opportunities. Creating these job opportunities also account for increased domestic expenditure and income. These companies introduce new technologies to the employees and sometimes even provide training to their employees. This reduces the cost of the government in training its citizens. Taxation revenues One of the major challenges facing developing countries is provision of social amenities to their citizens. This is due to poverty and lack of enough revenues for the government to provide such amenities as education and health services. Lack of basic education for these countries is one major cause of why they lag behind in terms of development. Poor health services contribute to high mortality rates especially to children under the age of five years. Foreign companies seeking to invest in these developing countries have always been welcomed so that they can help these countries add on to their revenues. Taxation adds to the domestic economy of the country where MNCs have invested. Due to this investment there is a direct flow of capital in the host country. Where these corporations are producing companies, they may save the host country’s revenue in terms of import. The companies may produce products that were previously imported to an extent of transforming them into exports. This will in turn earn the host country more revenue. Another source of revenue for the host country’s government is the money taxed directly from the salaries of workers. Previously we saw that multinational corporations provide employment to citizens of the host nations. The government earns revenue from salaries of all its workers in the country. From this discussion it is clear that presence of multinational corporations in a country has a significant impact on the host nation. Growth and efficiency Capital is a basic need of production; however, this is a rare commodity in underdeveloped and developing countries. MNCs offer foreign direct investment (FDI) to these countries. Developing countries may have enough natural resources available in their countries but lack resources in terms of capital and equipment. In mining, for example, most developing countries cannot afford the machinery required leave alone the capital. This is the opportunity for large MNCs specialized in the field to chip in. The host nations in this case have got no choice but to enter into partnership with the company. Another long term advantage to the host nation is improvement in technology. Most developing countries lack the technology needed in many industries. Introduction of foreign technology into these countries is always an advantage. The machinery and structures built, in the long run, will belong to the host nation. Sometimes the new technology is transferred the existing local industries. This helps in the growth and development of more efficient and cleaner forms of technology (Drenzer 2003). Not only do these companies increase employment opportunities but they also help in improving the knowledge and skills of the workers. This is done through educating them on how to use the machinery and they also gain experience. This improves efficiency of the workers and the general public at large. Due to increased exports, as indicated earlier, the gross domestic product (GDP) and the gross national product (GNP) of the host country will consequently increase. This in turn will attract more investors in that industry and also in other industries. This is known as the multiplier effect or the ripple effect. This effect is described as all the potential good things that could occur due to infusion of technology, capital, exports and skilled labour. There are other impacts on developing countries that may not be that clear to observe but still are significant to the host nation. One such impact is that presence of MNCs in a country helps improve a nation’s institutions and values. The foreign investors’ relationship with the community becomes good due to the mutual benefits. They promote good work ethics in the community and make a country accept changes due to the interaction with foreign markets. There has also been noted that the more a country interacts with other developed countries, in borrows ideas from them which can help it grow economically. There have been noted political improvements due to integration with other countries. Due to interactions with other countries, especially through trade, there have been improvements in understanding of each other with an overall goal of global peace. For many underdeveloped and developing countries, foreign investment is their best way- and perhaps the only way- to develop their countries. Most of these countries do not look at the long term effects of foreign investments due the urgency. Below I have discussed some of the major negative effects of multinational corporations on developing countries. Environment The long term effects of industries on the environment are always devastating. Mining companies are the worst in terms of environmental degradation. These companies have been accused of insensitive ways of extracting natural resources such as iron, gold, diamond, and other minerals. They usually dig large amounts of productive soil and then leave behind large holes. This land cannot be used again for a long period of time and may take the host nation a lot of funds to reclaim the land. Most industries release toxic gasses into the air and other waste products such as chemicals into water bodies. This has deadly consequences on people, animals, and plants. The government should put in place measures to ensure that the environment is taken care of in order to protect the country. Market Due to the availability of capital and resources available for MNCs and the size of their companies, the cost of production for their products is lower. This means that their products will retail at a cheaper price than those produced by local industries. This may seem as an advantage to consumers but it poses an unfair competition to local industries. Also the quality of their produce may be higher due to the technology they have therefore posing a threat to local industries. The best way to solve this would be to incorporate the local industries in their technology so that competition between them is fair. Monopoly is another factor that has affected the local industries a great deal. Due to the fact that these foreign companies are very large, they produce large amounts of products. They take over the market in the host countries thus suppressing the local industries. With this regard, multinational corporations are a barrier o the growth of small businesses in the host nation. Controlling local economy MNCs have the advantage of having the freedom to shift anytime they want to mew locations. This gives them an advantage of exerting pressure to the host countries when they are confronted and fear loses. These corporations have become among the major sources of wealth and employment to many developing countries. As such, they have a strong ground to oppose any attempted steps by the host nation to impose harsh demands and regulations concerning the welfare of workers and environmental issues. Most workers are usually overexploited by these companies in terms of less salaries and poor working conditions. Due to the large amount of money these companies have, they are able to influence the economic and even political status of a country. If harsh regulations are to be imposed on them, they threaten to stop the political and economic support. Conclusion In conclusion, it s clear that the positive impacts of multinational corporations surpass the negatives impacts on developing countries. Some MNCs are very large that their incomes are far much larger than some of smaller countries in the world. The relationship between these companies and the host nation is a mutual one. Governments reduce the duties for foreign investors in order to attract them. This creates good environments for these countries to thrive in. the shift of most developing countries from protectionism policies to free market policies has played an important role in the growth of multinational corporations. Their contribution to developing countries has a great impact to their economies and therefore cannot be underestimated. Most of these companies opt to invest in African and Asian countries where they can find cheap labour. The negative impacts of these companies cannot be ignored too. Most of these negative impacts are long term for instance on the environment. The governments of the host nations should not discourage these foreign investors but should work together to see how they can minimize the negative effects. Host countries should put in place measures to see that people are not overexploited by foreign investors. On the issue of environment there should be agreements between the host nations and the companies to protect the environment. Such agreements mainly concerns disposal of waste products. Foreign investors should also be actively involved in the development of the whole community at large. For instance, they can be involved in supporting education especially to the communities where they have based their industries. It is the responsibility of every government to protect its citizens from any kind of threat. Although foreign investors have helped a great deal in the growth of economies of most developing countries, their negative effects should not be overlooked. As stated earlier in the essay, MNCs have overshadowed many small businesses and local industries in developing countries. The largest percentage of people in developing countries depends on small businesses for a living. It is the responsibility of the governments of the host nations to ensure that small businesses are protected against multinational corporations which have taken over the larger part of the market in these countries. References Drezner, Daniel W. "Bottom Feeders." Annual Editions: Developing World. 12th Ed. McGraw Hill/Dushkin, Guilford, C.T.: 2002/2003. 44-49. "Everybody's Favourite Monsters: A Survey of Multinationals." The Economist Vol. 326 #7804 (27 Mar 93): Survey Insert. Greer, Jed and Kavaljit Singh. A Brief History of Transnational Corporations. Corpwatch. 2000. Global Policy Forum. 30 Nov 2003. . Read More