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Multinational corporations are businesses which are active in more than one
country.
They might have distribution outlets or factories abroad, or they may offer
services which are brought by organizations or people located in other
countries Multinational Corporations (MNCs)
MNCs are businesses that operate or have assets in more than one
country. they are sometimes described as transnational corporations (TNCs)
or multinationals enterprises (MNEs)
MNCs have offices or factories in different countries and usually have a
centralised head office where they co-ordinate global management- this is
where they are based. the other countries where they operate are described
as host countries
MNCs can be very large organisations with turnover exceeding the GDP of
many countries. But not all MNCs are large, powerful corporations; many are
small scale by comparison
Most of the largest MNCs are American, Japanese or European but
countries such as India & china now have large MNCs which are growing
rapidly
MNC objectives:
To access new markets:
For many MNCs, domestic markets are saturated. future growth & rising
profits must come from expansion overseas where rising incomes can be
tempting
entering new markets can form an extension strategy for the product life
cycle. products which are in maturity or even decline can take off again and
continue to yield profit in new markets
To reduce costs:
there may be economies of scale leading to lower unit costs & enhanced
competitive advantage
moving overseas to produce can reduce input costs. unskilled & semiskilled labour may be cheaper, more available and less regulated
proximity to markets can also be significant in reducing transportation
costs
To control resources:
many busiesses have to follow the resources to extract & process them
companies that rely on a secure, and preferably cheap, source of raw
materials are likely
to expand where they are found. examples include minerals,
petrochemicals & many other commodities ,e.g. palm oil, which is vital input
for food and cleaning products. del mote has its own pineapple plantations
in Indonesia
Wages:
Take care here. do not confuse low wages with exploitation of the workers.
wage levels must be considered in comparison with wages elsewhere in the
host countries (in own country, say Indonesia, Vietnam)
cheap labour is often important but some MNCs pay higher than average
wages in the host country
there are several reasons for this: increased motivation, increased
productivity, lower staff turnover, wider choice of workers
- MNCs may require skilled workers & train up the local workforce
they may acquire useful skills that will benefit them if they move on
locals trained as managers may learn new business techniques
MNCs often bring new technologies, techniques & methods which can be
learnt & adopted in the host country
- new work practices & technology help the host country to become more
competitive & grow - this is called technology transfer.
health & safety conditions are often poor & regulations may be ignored
child labour may be used & exploited
Transfer pricing:
- One of the claimed benefits of MNCs is that they will increase a host
countrys tax revenues. MNCs should in theory pay tax on profits
earned in that country.
-One way round is transfer pricing.
Examples include:
Nike
Gap
Primark
According to UNICEF, globally nearly one in six children aged 514 are engaged
in child labour.
- By far the worst accident happened in 2013 when 1,129 workers were
killed after the collapse of a factory building at Rana Plaza in Dhaka. Primark
was supplied by that factory.
- Phillips-Van-Huesen, owner of brands such as Tommy Hilfiger, Timberland
and Ted Baker, has been criticized for closing a factory in Guatemala
because the workers tried to form a union to protect their basic rights.
Environmental impacts:
In the BP oil spill in the Gulf of Mexico in 2010, more than 200
million gallons
of crude oil were pumped into the Gulf of Mexico for a total of
87 days,
making it the biggest oil spill in US history.
Conclusion:
Evaluative points: - Without MNCs we would have to rely on our own
resources, choice would be limited, prices would be higher and innovation
would be well below the level we take for granted.
In a way, MNCs have been a key factor in the large improvement in welfare
and reduction in poverty that has occurred in developing countries over the
last forty years. Countries with little involvement with MNCs such as subSaharan Africa have developed more slowly.
On the other hand all examples mentioned previously. E.g. child labour, low
wages, poor working conditions, too much competition for domestic
companies, environmental consequences, global warming
creates FDI
brings jobs
regional multiplier effect
skills and technology transfer
increased demand for local businesses/ suppliers
increased tax revenues- government has more revenue to spend
export earnings
other MNCs may follow
CSR policies bring benefits
BAD
by their very nature MNCs are hard to control because they transcend
national boundaries
there is no such thing as a 'world government' or 'world court' that
can prevent MNCs from doing what they want or force them to modify
their behavior.
there is a range of factors which can influence MNCs to a certain
event
Pressure groups are organisatons that attempt to influence public policy &
especially Government legislation, regarding their particular concerns &
priorities
Madagascar. Some governments are desperate for FDI and overlook low pay
& working conditions.
Importance of the MNC to the host country: smaller/ emerging
economies may be reluctant to confront a company that may be important
to it both economically and in terms of employment. National objectives
may override concern for local communities
Strength of public opinion: the level of public awareness, the number
of people who are concerned and the depth of their feelings all affect the
degree of influence that public opinion can have.
The degree to which public opinion matters to the MNC: consumers
for its sales is more likely to be influenced by tactics such as protests and
boycotts than one that supplies other businesses. can work both ways!
Businesses use it to promote their products
Social media/ internet: & to boost their own image some pressure
groups are more effective
The strength and vigor of a pressure group: than others in their
campaigns. Greenpeace is renowned for its direct actions & headline
grabbing stunts
More examples:
Public opinion:
the way people feel about a company can influence its actions. If the
public decide not to buy a certain product/ brand because they disapprove
of the company's actions it can persuade them to change policies.
Example. The boycott of Nestle is the world's longest running. It began in
1977 in response to aggressive marketing of Nestle baby milk formula in
poorer countries. Public concern over phone hacking by the media led to the
closure of the News of the world
Pressure groups:
An organised group that seeks to influence either the political & legal
process/ whole industries or individual companies. Pressure groups can
organize campaigns, protests or even direct action
Example. Greenpeace campaigns for environmental causes. Action on
smoking and health (ASH) is a campaigning public health charity that works
The media:
Newspapers & TV programmes can mount campaigns to mobilise public
opinion & affect MNC's behavior.
Example. BBC Panorama programme investigated working conditions in
Primark's supply chain
Self-regulation:
Many MNCs follow a code of conduct which sets their own standards of
behaviour. This may be because of altruism or to prevent adverse criticism
Example. Multinational seed companies, Emergent Genetics & Proagro,
have launched a scheme of incentives & disincentives to persuade their
suppliers to discontinue the use of child labour on their farms
Legal enforcement:
All countries have legal codes, i.e. laws, and MNCs that break them are
subject to prosecution
Example. National Minimum Wage Act, Health and Safety at Work acctm &
similar laws in other countries
Shareholder Groups:
Shareholders who are the owners of a business can try affect an MNC's
behaviour by protest or votes at the AGM
Example. BP shareholders mounted a rebellion & protest at BP's AGM over
its plans for Canada's oil sands.