Multi National Corporations Positive Or Negative Economics Essay
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Published: Mon, 5 Dec 2016
Multi-national corporations are defined as huge corporations that extend their business through direct investments abroad in form of marketing or subsidiary in multiple countries. MNC’s differ in size and interest located around the world. Multinational corporations (MNC) are deliberated to be the key rudiments highlighting and indorsing the globalization of products as vast economic institutions. MNC’s tend to expand their businesses through foreign direct investment (FDI). Gilpin states that, most of these huge corporations tend to extend existing business or build new ones (Gilpin, 2001). The tenacity of these corporations is to accomplish part of control of other economies and markets. Ownership or control of productive assets and import and export of products overseas of MNC’s is what makes them different from that of other corporations (Bossmon Baafi, 2009). Dunning defines MNC’s as, “enterprises that engage in foreign direct investment (FDI) and owns or controls value adding activities in more than one country” (Dunning, 1993). MNCs reminds of governance systems that needs manage the title role of political organizations despite internal and external forces. John Pierre in his article, ‘understanding governance’, defines governance as sustaining coordination and coherence among wide variety of actors with different purposes and objectives such as political actors and institutions corporate interests and more (John Pierre, Page 4). John introduces the concept of ‘steering’ as the main role of the government managing society, market and economy (John Pierre, Page 4). Rhodes mentions about seven dimensions or models of governance namely corporate governance, governance as the new public administration, governance as good governance, governance as international interdependence, governance as socio-cybernetic system, governance as the new political economy and governance as networks. This paper will use the corporate governance as a model and prove that the MNC have had positive impact over host country in different sectors such as socio-economic, security and politics.
Role of MNC and FDI
Multinational Corporations have different divisions of which an important one is foreign direct investment (FDI). The purpose of FDI is to attain partial or complete control over marketing, production, or other facilities in another economy; such as investments maybe in services, manufacturing or commodities. (Gilpin, 278) The early firms mostly focused on the agriculture on their region and the workers were native people, while modern firms are focused on manufacturing, retailing and services because they want to have worldwide view (Gilpin, 2001). In 1980, John Dunning built up a theory that clarify why companies would invest abroad and become multinational corporations (MNCs). This theory was named Eclectic theory and is known as the OLI model nowadays. (“Reason for a company to become a multinational Corporation”, 2010) The Reading School’s Eclectic Theory of the MNC is grounded on the ideologies collected from many sources and research about MNC. The Eclectic theory is serviceable for understanding the development and improvement of MNC performance. Eclectic theory boons affect essentials of MNC. Developments in communication and transportation make the business at ease athwart the borders. It helps business firms to achieve and direct their services and production system on the global foundation. Dunning declares that the exclusive nature of extraordinary success of MNC goes to its unique advantages. These advantages are ownership, location, and specially internationalization. (Gilpin , 2001)
MNCs as Global Discourse
The issue of MNC’s and their influence on host country is a controversial discourse around the world. Number of scholars has managed to analyze positive and negative impact of MNCs in different countries. There are different ideologies about the implication of MNCs concerning the national and global economic affairs. Some economists accept as true that MNCs are powerful self-governing forces monitoring the international fiscal activities based on their interests. On the other hand, some others believe that MNCs have some progressive impacts on the world economy. These quarrels bring about the demands such as “why do such big companies or organizations invest in the others countries? Do these investments have any impressions on the global economy? Mireille writes in one of her articles (Globalization and multinational corporations) that the influence of multinational corporations is replacing that of States; over two thirds of the 100 largest economic entities are now companies and not States (Mireilli, 2008). Forbes, a new website, Carlos Slim 72 year old man who is now the chairman of Telmex Telecom, whose source of income is telecommunication, whose net wealth is determined 69 Billion dollars is listed as number 1 as the ironic man in the world. So far it appears vibrant that multinational corporations are leading in economies of host countries and universal economy. According to United Nation Conference on Trade and development, as of 2006, there were 63,000 multi-national corporations with over 700,000 branches scattered across the world (Shoo, 2011).
Socio-economic (Positive impact)
One of the components MNCs want to invest across the borders is to have access to external market. It can be calculated as internationalization benefit for company. They want to have trade dealings with the great financial powers to start branches of their companies in these countries. Although internationalization of trade has advantages for companies, it has a huge positive impact over economy of the host country and global economy such as technology transferring, economic growth, employment, and taxation. MNC and FDI have some beneficial impacts over the host countries economy especially in developing countries. Findlay and Wang cited Gorg and Stroble that, “Demanding foreign direct investment can lead to the inflow of superior knowledge into the economy, which can be adapted by host country firms.” The inflow of superior knowledge can lead to technology spillovers to the host country firms improving their productive efficiency as they learn from MNC (Eric, 2000). Technology diffusion plays a central role in the process of economic development. In contrast to the traditional growth framework, where technological change was left as an unexplained residual, the recent growth literature has highlighted the dependence of growth rates on the state of domestic technology relative to that of the rest of the world, in fact, One of the most important positive elements of MNC and FDI is transferring technology to the host country.
Transferring technology to the host country would increase productivity; this occurs when they import different technology to the nations they operate in. Therefore, this would rise competition as the restricted firms will try to reproduce their technologies or employ workers initially trained by Multi-national Corporation. This competition between local firms and MNCs would lead them to improve their products and adapt innovative technology (Shoo, 2011).
To demonstrate, in Afghanistan the telecommunication companies are live examples of transfer of technology. Etisalat, MTN, Roshan and AWCC are among those multi-national corporations that has established their branches in Afghanistan since the arrival of international community. These companies not only contributed in transferring technology but also managed to contribute in economic growth of the country. Government managed to tax such huge corporations which enable increase of budget out of their tax money. Furthermore, the presence of MNC and FDI can be an element for the economic growth of a country. According to Bossman Baffi, one of the economic hope and objectives of the developing countries to get out of poverty is to attract the foreign direct investment into their diverse economies. Therefore it is a dream for developing world when MNCs decide to operate in their country. One of the key elements why the governments in developing countries try to catch the attention of FDI and MNC to put up their finance by making substantial concession work because of employment. When MNCs and FDI invest in the country the opportunity for work would increase. Lots of international companies would establish and more people would go to work, as a result the rate of unemployment will reduce which increase the economic growth. (Bossman Baffi, 2009).
Another very impressive positive impact of these corporations was that they also increased employment rate in the country. Therefore, MNC’s had a huge impact on the overall economy of the country.
On the other hand, employment rate increased due to MNCs. According to article, Afghanistan Employment Rate, it has clearly been demonstrated that unemployment rate were 3.37 percent by 2002 and 2004. What can one get is that employment rate was 96.63 percent, however during the Taliban regime employment rate was not even near to 10 percent. The change was dramatic and unbelievable to many people in and out of the country. MNCs contributed a greater percentage no doubt.C:UsersSULAIMANDesktopafghanistan-unemployment-rate.png
Additionally, the arrival of MNC’s in host country creates competition among firms in the same industry and in the end the consumer wins due to increase in quality and decrease in prices. John C. writes that, “Dispersed ownership structures not only differ bu they may be forced to compete” (John C. Page:2). The MNC’s as mentioned before are corporations who choose based on their efficiency to establish in certain country. Their appearance alerts other similar corporations in the similar industry of a vast rivalry that turns out into a clash in form of rivalry in the market. As soon as such competitions increase, firms have a tendency to to enhance the quality of a product and cut of prices down. This is because firms have confidence in that consumers can only be attracted to products when they recognize that the quality is better and prices are lower. What happens at the end is that consumers win. In India textile industry is enormous national and MNCs are both providing products to consumers. India earlier produced inexpensive textile that was not of a worthy quality. MNCs entered the industry such as American firm Levi’s with high quality products. Local corporations on the go produced textiles of better quality and at this time there is a huge competition amongst MNCs and local firms of textile industry. Who is benefiting more are the consumers in India. People have greater options with reasonable prices on hand.
As an example related to Afghanistan, one could rely on telecommunication companies as mentioned above. These corporations are competing in terms of costs of calls, messages and internet services that led to higher quality and lower prices. Earlier only the AWCC (Afghan Wireless Communication Company) existed and sold the products ten times more expensive as compared to the prices now. Almost all Afghans use phones and all of those people benefited from the competition among these companies.
Many deny the fact that, most people used to choose to work with commanders on rural areas specifically, to feed family members. These people often times have committed to have chosen the job due to malnutrition of their children of siblings. Increased crime and wide spread of crime throughout the country was a major issue. After 9/11 and the arrival of these MNCs most of these people were employed. For more clarification these men were hired by security companies that are multi-national corporations. These security forces chose to employ them because they already had experiences in training based on employment requirements.
What happened when these people were employed was that it had unprecedented positive impact on security especially the North of the country. They make good money because they are paid well as compared to what they were paid earlier. They manage to send their kids to private schools. They also send their kids to English language centers to learn English language because they can afford their tution fee. Overall they live good life free of crime or any violent act.
Another assumption made by any analysts is the influence of MNCs in the politics of the host country. This is to some extent sensible argument because in some countries huge corporations proved its dominance and great influence over politics of countries shaping policy makings affecting their businesses. Marxist or Quasi theory states that firms expand in size both in border and out of border creating a hierarchical core and periphery. The periphery is mainly believed to be countries suffering from a poor political system of economy and the core are strong countries with stronger politicians and strong economies. No doubt this is true but the overall performance of the MNC’s is positive. If one weigh as mentioned before too the pros and cons of MNC’s global performance the pros are more than its cons. Today many families access technology due the presence of FDI and the MNC’s in their countries. Similarly in Afghanistan policy making has been influenced more by MNCs since they have arrived.
As far as government realizes the positive impact of MNCs over socio-economic sector and security sectors, no doubt government would more try to shape political decision makings based on attracting more of foreign direct investment (FDI). John C. writes referring to government that, the more one (Gov.) tries or believes that political forces are likely to constrain and over-ride pure economic forces, the more likely to expect or face muddled outcome (John C. Page: 3). To demonstrate his point, he wants to prove the fact that economic forces are stronger than that of political and if political forces try or intend to compete and constrain economic flow, politician will face cloudy atmosphere of managing the relation between them. He in his article also basically talks about two levels; (1) which system is better, corporate governance or (2) which system of forces-economic or political forces are likely to prove more powerful? In fact he persuades governments to apply the corporate governance model because it favors the overall economic condition of host countries.
Corporate governance has been a dominant policy issue in developed market economies for more than a decade now. For some governments it took some time to climb the ladder of policy priorities. Similarly, Afghanistan might also need some time to climb the ladder and prepare some policy priorities in future favoring MNCs and their presence in Afghanistan. For now one of the most important factor is that, process of prioritizing has begun and government is welcoming MNCs taking its interest into consideration.
As discussed above many believe that MNCs have negative impact on the economies and political systems of host countries, but the other side of the argument that this paper also argued and emphasized on is that it has a positive impact over host country. The impact of MNCs in host country has positive impact in different sectors such as socio-economic, security sector, technology sector and most importantly political sector. As argued above, MNCs have positive impact on host countries overall condition. Most importantly in the modern world of today putting constraints over the flow of FDI or MNCs is almost impossible and any government wanting to put those constraints will face more difficulties in managing political relation with MNCs as a consequence more confusions.
For Afghanistan MNCs have had a positive impact in all sectors. It is known by now that the foreign troops are withdrawing from Afghanistan by 2014 and Afghan politicians as smart politicians should manage to further attract foreign aid so that the part that it is playing now as a contributor in developing security, economy or politics would be able to maintain in future. Afghanistan has mines and FDI and MNCs would help afghan government extract mines and sell them in the market to provide better life for citizens of the country. This would allow new hope and vision for the people of Afghanistan in future of developing their country rather than destroying it.
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