economics

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The Positive And Negative Impacts Of Transnational Corporations

A transnational corporation (TNC) or multinational corporation (MNC) is a firm which has the power to co-ordinate and control stages in operations of production chain in more than one country, even if it does not own them. Transnational Corporation take advantage on national differences in production factor costs such as natural resources, labour, and state incentives where it has the ability to switch its resources and operations between locations at a global scale.

Role of Transnational Corporations (TNCs)

The role of transnational corporations (TNCs) or multinational corporations (MNCs) has created the wealth, new job opportunities and new tax revenues that arise from multinational corporations’ generated income. By increasing the efficiency of capital flows, multinational corporations (MNCs) will contribute in reducing the levels of world’s poverty in developing countries, improve their infrastructures, strengthen their human capital and always encourage countries to cooperate and seek peaceful solutions for conflicts.

Transnational corporations (TNCs) or Multinational corporations (MNCs) have responsibilities on its employers, customers, governments, suppliers and communities as well as towards shareholders. Corporate social responsibilities (CSR) that take part in protecting TNCs’ business where businesses must include duty, do business honestly, legally and with integrity, make deals fairly, do not be corrupt and always obey the laws’ of host countries. Sub-Saharan Africa, South Asia and North Africa are experiencing poverty, repressed human rights and environmental damage.

Transnational Corporations and Introducing New Technology

Positive impacts

Bianchi, Carnoy, and Castells (1988), research in People’s Republic of China, saying that that the importation of new technology includes both hardware and software including quality control with the use of technology to create minimal technology transfer and lesser productivity linkages to other firms. Besides that, it appears to imply a changing structure of the demand for skills due to the combination of the growth of high-technology production as economies expand. These will most probably a benefit to foreign firms by creating more opportunities in productions and capital equipment in the particular firm.

According to T. Koizumi and Kopecky (1980), developing new technology will provide great opportunities to countries’ economic growth as there will be a change in technology advance by improving information flows rapidly and increase the speed to integrate national economies into global economy so that countries that have relation with transnational corporations (TNCs) will be able to access to more advanced technology such as information technology as well as increasing their competencies and get a stronger position in the world market.

N. Kumar and N. S. Siddharthan(1997)stated similar idea on Introducing new technology to a country is very important because it is a critical aspect which related to the development of a country. Without advanced and sophisticated technology, a country might not be able to develop faster due to its low growth and development rate. By introducing new technology, it might create the possibility of producing new goods and services, treatment and dissemination of useful information which will turn into an increase in productivity, the expanding of production level and jobs employment.

Negative impacts

There are experts who argued that introducing new technology to a country especially developing country will result in unemployment because of uncoordinated world demand where the rates of economics’ growth are too slow. Hence, the standard of technology contrast the differences in competitiveness between the developing and developed countries in term of production level where the developed countries are more competitive than developing countries due to more advanced technology (J.W. Lee, 2001).

Ernst (1986), who did a study on employment effects in the Asian developing countries, made a conclusion by saying that, the new technical change will only make a very small percentage in contributing to the reduction of the mass unemployment in the third world societies. Since the new micro-technology is becoming automated itself in developing countries, it will cause an increase in unemployment rates where the jobs employment in the micro-electronics based industry is only a small percentage in total of manufacturing industry.

When micro-electronic take place in manufacturing industry, most of the jobs employment created in micro-electronics production is focusing on new workers where women take a larger participation in production level, highly educated than men in research and development, management and sales. This will lead to workers displaced by micro-electronics in jobs employment because they do not distinguish between the percentage of job loss and not controlling changes in production output due to developing new machinery into the particular organization (Carnoy, 1985a, 1985b).

An example of Bhopal disasters caused by America MNCs’ subsidiary, Union Carbide India Limited that produces pesticides which using sophisticate technology being brought to India. During 2-3 December 1984, a mixture of poisonous gases flooded the city of Bhopal and as people woke up with a burning sensation in their lungs, thousands died immediately from the effects of the exploration of the toxic gas in the atmosphere (Eckerman, 2005).

From the incident, 200,000 and 450,000 local people were exposed to the toxic fumes, around 60,000 people were seriously affected with impaired lung functions, severe gastrointestinal damage and other ailments. More than 20,000 people have been permanently injured and up to 10,000 people have died in the tragedy. Bhopal residents had suffered from respiratory and fertility problems for long-term health problems (Eckerman, 2005).

Transnational Corporations (TNCs) and Labour and Employment

Positive Impact

Rama (2003) stated that the career opportunities are being created more and more then provided to the people of developing country especially skilled workers. While businesses organisations invest in developing country, it’s always aim for the lowest labour cost to minimize their business cost and maximize their profit while they are able to satisfy and achieve the expectations of the particular company.

However, when MNCs move their production operation into developing countries, jobs opportunities in host country will become more through the process of globalisation. The creation of job opportunities will only occur in the export-processing zones where large amount of work forces take place and required to keep the production process running (Rama, 2003).

A good example of jobs creation would be Coca-Cola Company that decided to invest in Malaysia with a new bottling plant, consist of $301 million investment. Agence France-Presse, (2010) stated that this investment will able to create 600 to 800 new jobs opportunities from the plant with 8,000 jobs connect with local suppliers.

Negative Impact

Woods (2000) stated that the government of developing countries has been working very hard to attract foreign direct investment (FDI) of multinational corporations (MNCs)and started to compete with each other by deregulate their countries’ policy. Hence, with lower the wages and taxes rates, it enables the investors to avoid the risk of losing their capital invested in developing country.

The Economist (2001) and Woods (2000) saying the government of developing countries increasing minimum wage and labour safety standards in order to protect local workers’ rights and this might cause MNCs have to relocate their operation to another developing countries, who are willing to accept low wages, lack of union representative and legal protections such as child labour and other gross labour that abuses by global companies.

In a global market, the demand of the skilled worker is much higher than the unskilled workers. Thus, this will widen the gap of income between both the classes of workers when they used to compare with each other. Skill workers will be easily to be offered for a job while those unskilled workers will face the difficulties in getting a job. As the result, unskilled worker always being categorised as the low income class since their income is much lower from skill workers (G.A. Cornia, 1999 and A. Wood, 2002).

For example, the Niger Delta, Africa’s largest oil and gas industry such as Shell, developed by large TNCs. The Nigerian government makes billion annually from its resources, but the unemployment rate is around 90%. The gas flaring, has caused both acid rain and respiratory problems which has been in effect 24 hours a day across the Delta, with some flares burning continuously for 30 years. Appearance of TNCs has lead to logging, mining, and farming which has frequently destroyed land that supported by local communities for centuries or displaced by the local population by force and intimidation.

Transnational Corporations and Impacts on the Host Countries’ Economy

Positive Impact

According to Baghwati (2004), when a country goes global, it is playing a significant role of enhancing economic affluence by offering more and more opportunities to developing countries. Transnational corporations (TNCs) created global markets and characterised it as a reduction in trade barriers such as free flow of goods, import duties, services and labour from one country to another (Gangopadhyay and Chatterji, 2005)

Richardson (2000) contends these views as, taking the advantage of trade to serves as an opportunity to stabilise country’s economy when the increasing in trade turn into increasing in income. Richardson, (2000) and Dierks, (2001) proved that the effect of this statement is true because global activities has greatly reduced trade barriers between trading countries through the adjustment of import duties.

Negative Impact

Aurifeille, (2006) argued that global economy activities has increased capital flow into developing countries’ economies while foreign direct Investment (FDI) injects capital in terms of stabilizing the countries’ economic. This is a benefit where it will increased the countries’ financing through loans and grants from developed countries but there is a risk that need to be take into consideration where the net capital inflow that could lead to negative effects on trade.

The adjustment in trade barriers has lead to the promotion of specialisation to developing countries because they are able to concentrate on the production of commodities which can be produced at the least cost (Aurifeille, 2006). Developing countries fully use the advantage of globalisation to enhance their income through trading goods which they can produce most effectively.

Corsi, (2009) saying it is always an effective way of enhancing innovation to produce better quality goods, enhanced competition as the flow of goods and services between countries has becomes easier but such development is giving developing countries an opportunity to obtain goods that prove expensive to produce in their own countries.

For example, financial crisis that fallen upon Argentina, crises of America free market economies was marked by the collapse of the Mexican stock market in December 1994.This situation happened during the new launching of neoliberal model called NAFTA (Salomon Partnoy, 2002).

At the same time, the indigenous Zapatista rebellion in Chiapas was challenging the corruption and lies on a total Mexican collapse through bailout orchestrated by President Bill Clinton to save the North American Free Trade Agreement (NAFTA). The second crisis fall on Argentina on December 2001, the collapse involved people in disaster, emptied the nation's bank accounts and the poor people were robbed to pay the rich (Salomon Partnoy, 2002).

Conclusion

In conclusion, there are both positive and negative impacts on host countries which caused by transnational corporations (TNCs) or multinational corporations (MNCs). Countries will not growth without TNCs’ business but if one’s country is too dependent on TNCs, it might not be a good decision as TNCs might bring disaster to developing countries, even the whole country can collapse in very short times. Hence, research done by scholar indicated that TNCs bring more negative impacts than positive ones’ in developing countries because it is still a lot of business techniques that have to be learn before we can really handle the global markets’ activities.


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