Background
Multinational corporations can be defined as enterprises operating in several
countries but are managed from their home country. In general any company that
takes in a quarter of its revenue from operations outside of its home country is
considered to be a multinational corporation. Today the multinational
corporations have a radical effect on the economic system all over the world. This
is due to the growing in the international business of the multinationals, which has
tremendous effect on the traditional forms of international trade and capital flows
for economies at large. In the world economy they create a powerful force. The
multinational corporations have shown enormous power in the areas of
international trade and finance.
Characteristics of a multinational company include:
• They are massive in size and turnover super normal profits.
• Due to takeovers and mergers, a multinational corporation has assumed lots
of power. Also with this, its size makes it oligopolistic.
• A multinational corporation facilitates multilateral transfer of resources
allowing it to trade resources between 3 or more countries.
• The institution may even hold the key to control, it's interests and areas of
operations can envelop many other countries.
There are four types of multinational corporations:
1. A multinational, decentralized corporation with strong home country
presence. Essentially a multinational organisation is a company which bases
its headquarters in one country but has production facilities and/or assembly
facilities in other countries. The system relies on teams to make the business
successful. An example of a multinational corporation is Tesco or Coca Cola.
2. An international company is a company that builds on the parent
corporation's technology or research and development in another country .
An example of an international business is Google or Apple.
3. A global, centralized corporation that acquires cost advantage through
centralized production wherever cheaper resources are available. A lot like a
decentralized corporation except for the company is generally controlled by
one person who creates the guideline for the rest of the company. An
example of a global, centralized company would be Microsoft or General
Motors.
4. A transnational enterprise that combines the previous three approaches. It
is basically a company that owns or controls production of goods or services
in one or more countries other than their home country. Vodafone or Toyota
are two of the biggest examples of transnational corporations in the world.
Advantages of Multinational Corporations:
• Cheap Labour
One of the advantages of multinational corporations is the opportunity to
expand to countries where labour is less expensive. This is one of the benefits
that smaller companies do not have at their leisure. Multinationals can
distribute up their offices throughout several countries where demand for
their services and products are high while cheaper labour is available.
• Broader Market Base
By opening business or offices in several countries, multinationals increase
their chances of reaching out to customers on a global scale, a benefit which
other companies like limited to regional offices and establishments do not
have. The access to a greater value of consumers gives them more
opportunities to develop and alter their products and services that will be
appropriate to the needs of potential customers.
• Tax Cuts
Multinationals can enjoy lower tax rates in other countries for both exports
and imports, an advantage that owners of international corporations can
take at any given day. And although not all countries can have lower tariffs,
there are countries that give tax cuts to investors to attract more
international companies to do business in their country.
• Job Creation
When international companies set up branches in other countries,
employees and members of the team are generally locals. In hiring local
workers can ensure that the corporation adapts easier to the local culture.
Also hiring local help ensures that the corporation essentially can help to
develop an inside view in the market that can therefore provide beneficial
feedback.
Disadvantages of Multinational Corporations:
• Potential Abuse of Workers
Multinational companies often invest in developing countries where they
can take advantage of cheaper labour. Some multinational corporations
prefer to put up branches in these parts of the world where there are no
demanding policies in labour and where people need jobs because these
multinationals can demand for cheaper labour and lower standard in
healthcare benefits.
• Threat to Local Businesses
Another disadvantage of multinational corporations in other countries is that
they have the potential to dominate the market. These giant corporations
can dominate the markets they are in because they have the more renowned
products and they can afford to even sell them at lower prices since they
have the financial resources to buy in a much larger quantity. This can devour
all the other small businesses offering the same goods and services. Most
likely chances are, local businesses will suffer and maybe even worse, close
down.
• Loss of Jobs
With more companies transferring offices and basing operations in other
countries, jobs for the people living in developed countries end up becoming
threatened. Take the case of multinationals that create offices in developing
countries for their technical operations and manufacturing. The jobs given to
the locals of the host country should ideally be the jobs appreciated by the
people where the head office is located.
N.B* Multinational corporations have both advantages and disadvantages since it
creates jobs but can also end up in the exploitation of workers, among other things.
And since they are most likely to stay, it’s best to create policies to make
globalization equitable.
Global Responsibility and Ethics of Multinational Corporations:
Multinational corporations have provoked considerable debate about the issues of
efficiency and social justice. The surge in economic growth and inequality together
has led to serious problems for economic rights in developing countries. On a rights
based perspective, we argue that in the area of human rights the responsible party
is generally the state. In the context of neoliberal globalization, on the other hand,
the issues generally lead back to the corporations. Reliance on the state alone may
not be sufficient to largely protect human rights. Particular corporate behaviours
are detrimental to internationally recognised human rights norms. Although
private actions, media exposure, and lawsuits based on civil law appear to be the
only practical way to put the pressure on multinational corporations, it is important
that we examine other possibilities such as an outside governing body to hold in
check unrestrained global capitalism and to bring accountability to multinational
corporations policies that are socially destructive. Multinational corporations have
become a pertinent subject due to their progressive growth and influence on the
world stage, and the ways which they affect the life chances of millions of people
around the world. Human rights groups and organizations insist that free trade and
its "rules", or lack of, are not sufficient to promote a fair game and that the
pressure asserted for greater social responsibility of the multinational corporations
is necessary given their ever increasing influence and the trend toward further
privatization. Because multinational corporations have gained powers traditionally
settled only in states , they should arguably be held to the same standards that
international law presently imposes upon states.
The Multinational Corporations power in controlling international investment,
especially portfolio investments, has had a massive bearing on the economies of
developing countries. Dealing with pressures to attract these investments, for
example, governments in South America have had very little or no alternative but
to be welcoming to the terms of Multinational Corporations. The lack of bargaining
eight with the Multinational Corporations means, like for example, the minimum
wage has had to be set unrealistically low in developing countries so as to attract
foreign some investment. Also a related criticism of Multinational Corporations is
that their overall strategy of relocating from the North has kept wages and living
conditions down and has resulted in the expansion of sweatshops in the South. This
has led to the view that globalization is a euphemism for “sweatshop global
economy.”
In the end whether the answer lies in restructuring international organizations,
enhancing private actions and media exposure, or creating a single intermediary
institution, or regional or global governance, the case for the multinational
corporations self-policing is utterly unpersuasive. In the current global economy,
multinational corporations and their shareholders are able to reap enormous
benefits, and use their power to take advantages of workers and governments
alike. If they can benefit from this increasingly interdependent global economy, it
is only fair that they accept the responsibilities that go along with these economic
gains.
Conclusion:
The significance multinational corporations have on the economy has hopefully
been explained you in several ways. Their economic scale is constantly increasing
and particularly when measured by to their ownership of productive assets. While
economies of scale have made contributions to the growth of multinational
corporations, the strongest characteristic of modern multinational corporations is
their transnational flexibility in seeking opportunities to lower cost productions.
Multinational corporations have obtained significant political power but precise
measurement of this power remains unknown. Corporate power appears
particularly evident in the United States of America, where corporations have
lobbied to lower their total taxes and receive substantial subsidies whilst imposing
externality costs upon society. The political power of multinational corporations is
also quite visible in international trade agreements, where in which corporations
are able to challenge the regulations of democratic so governments. Pressure from
various directions is pushing multinational corporations to become more
transparent and accountable regarding their responsibilities both social and
environmental impacts, but much more has to be done. Making sure that the
objectives of multinational corporations meet with the broader goals of society is
unlikely to be achieved by voluntary changes or national regulations. The
transnational flexibility of multinational corporations implies that action on an
international level is required. The difficulty is that multinational corporations have
such significant influence over international agreements. Therefore only if the
interests of all stakeholders are accounted for in these agreements will meaningful
change occur.