Research Paper: Mncs Multinational Corporations

Pages: 10 (3197 words)  ·  Bibliography Sources: 8  ·  Level: College Junior  ·  Topic: Economics  ·  Buy This Paper


[. . .] Other parts of the world on the other hand are rocked by international capital flows moving instantly in and out of countries. As Eden and Lenway point out, we should therefore "not be surprised by the backlash from those who feel disenfranchised by the process or who blame their suffering on globalization" (388).

The multinational enterprise (MNE) offers the capability to create value-adding activities that improve national competitiveness, which in turn contributes to economic growth and national welfare. MNCs then engineer national competitive advantage, making them particularly attractive to nation states. Yet their size and geographic scope endow MNCs with considerable economic power, potentially leading these firms to take their toll on both home and host states. Eden and Lenway argue that if the MNC has "a bright side in terms of its potential contribution to economic growth and national welfare, it also has a dark side represented by its potential negative impacts in the environment, labor and human rights areas" (389). Websites maintained by citizen and NGO groups depict the MNC groups as "pollution-generating, tax-evading, corruption-breeding MNEs, stifling domestic entrepreneurship and bringing misery and hardships to the public" (Eden and Lenway 390).

A study conducted by economists found that in most cases MNCs have a positive impact on developing nations overall. Critics of globalization believe that weak enforcement of environmental policies in developing countries "leads to a race to the bottom and industrial flight from developed countries" (394). Some industry analysts argue that MNCs' locating manufacturing operations in developing countries is an attempt to escape environmental regulations that developed countries impose. Instead, a study of MNCs in China found that multinationals have a positive impact on developing nations: "In their study of 118 business ventures in China -- some locally owned, some owned by MNCs, and some jointly owned -- Christmann and Taylor find that MNCs and their suppliers were more likely than local firms to comply with local regulations and to adopt internationally recognized environmental management standards such as ISO 14000" (Eden and Lenway 394). While China welcomes foreign investment with a pro-business regulatory environment, other developing nations like India have historically been reluctant to trust the good intentions of profit-maximizing MNCs.

In discussing the Christmann and Taylor study, Michael Santoro describes the evidence as being "mixed" as to whether MNCs consider local environmental laws when making decisions about where to locate manufacturing plants. It is likely that the glare of publicity that environmental activists create is responsible for causing many MNCs to remain on their best behavior in the Third World, in hopes that no labor or environmental lapse will stain their brand names or global reputation.

According to Santoro, MNCs are "at the heart of the debate over globalization and its impact on developing countries." He notes that "Critics charge that MNCs violate labor rights, ruin the environment, prop up corrupt and repressive regimes, and undermine global cultural diversity." On the other hand, proponents of global economic integration stress the critical role of MNCs in providing essential capital as well as jobs and technology for developing nations. Underscoring the mixed feelings regarding this debate, Santoro comments that the dilemmas faced by China and India are all too familiar for developing countries. Santoro concludes that "…contrary to much vocal criticism, the interests of MNCs don't automatically diverge from the interests of developing countries. Sometimes…what's good for the multinationals is good for people too."

In sectors such as aerospace, pharmaceuticals, semiconductors, biotechnology or telecommunications, the scale of technology is such that a competitive R&D budget cannot be sustained by sales in even the largest national market. As a result Kobrin argues that MNCs must expand globally: "International expansion is a necessity if a firm is to fully amortize the enormous research and development expenses associated with rapidly evolving process and product technology" (20).

The debate is ongoing as to what the obligations of MNCs consist of. Jacon Wyans notes: "Clearly MNCs can provide developing countries with critical financial infrastructure for economic and social development." However, many MNCs' codes of ethical conduct allow them to exploit the neediness of developing nations, rather than to provide the critical support that is required.

Given the mixed results that MNCs bring to developing nations, it is appropriate to re-examine what has been written about the advantages and disadvantages of these institutions. For example, Youngelson-Neal, Neal and Fried contend that MNCs are having a negative impact on the development of local cultures. When multinationals infiltrate a developing country, the very context of local economic development is altered. Wyans (2) points out that "…the basic economic infrastructure of the country changes along with significant parts of local culture and tradition."

As an example, Wyans' article discusses the issues of economies of scale in the Canadian media. Many Canadian media outlets have found that it is cheaper to import media-magazines, syndicated newspapers and cable shows form the U.S. As the encroachment of U.S. media happens, Canada has begun to lose some of its cultural variations. There is concern that over the course of time, Canadian culture will become Americanized and there will be no real difference between the U.S. And Canada (Wyans 2).

Wyans (4) also advocates that the American government should consider some degree of regulation with respect to foreign investment. In his words "by limiting the investment capabilities of MNCs the American government could work toward building greater political strength by working with governments of developing nations." He too concludes that MNCs are providing notable benefits to the international community. In addition to improving the overall standard of living in many developing nations, multinationals provide a strong source of economic development. However, he argues that regardless of the benefits, MNCs are eroding cultural diversity, necessitating some form of government regulation. According to Wyans, "by ensuring that ethical statutes are followed by all multinational organizations and further by limiting foreign investment of MNCs in developing nations, the U.S. can make notable strides toward reducing the cultural erosion that is occurring as a result of globalization."

The economic, political, and technological forces of globalization are having dramatic effects. It is clear that labor, financial and commodity markets are becoming interconnected at an accelerating rate. By enlarging markets beyond national borders, global firms can achieve dynamic gains in efficiency through economies of scale. Youngelson-Neal et al. (31) describe changes brought about by the proliferation of MNCs. They note: "Production and consumption are occurring less and less in local markets and more and more in global markets" (31). They also make the pointed observation that what an innocent American consumer may think of as 'Made in America' is actually "the product of factories located in many different parts of the world and is made with labor from many different countries" (31).

Youngelson-Neal et al. also discuss how changes in the global environment have emerged with the rapid growth of FDI and international collaboration between firms. They point out that "As the importance of foreign direct investment and international inter-firm agreements have grown, the strategies of multinational businesses are operating in new ways leading to globalization of industry and the expansion of world trade" (31).

Jansen and Stokman investigate the relationship between the expansion of FDI and the internationalization of production and more synchronized business cycles. In the words of Jansen and Stokman: "German, French, Belgian and Dutch labour markets are significantly affected by profits of foreign-based multinationals, with employment being more sensitive than wages. By contrast, U.S. And UK labour market conditions do not, or hardly react to changes in foreign profitability" (abstract).

Slaughter examines the functions of American MNCs in the global economic picture, noting that international engagement is essential to the overall strength of U.S. multinational companies. Although the U.S. is still the world's largest single-country market, in the past generation it has been a slow-growth market by comparison with much of the world, and remains so when compared to the many countries that are recovering more quickly from the worldwide recession. Slaughter concludes: "This means that the overall strength of U.S. multinationals is increasingly tied to their success in both America and abroad" (Slaughter 3).

To achieve strong revenue growth many U.S. multinationals must expand their access to foreign customers. As Slaughter (3) points out "It also means that viewing the domestic and foreign operations of U.S. multinationals as being unrelated is increasingly incorrect. U.S. multinationals must make strategic investment and employment decisions from a truly global perspective."

Current trends in the international marketplace favor the continued development of MNCs. Countries worldwide are privatizing government-run industries, and the development of regional trading partnerships such as the North American Free Trade Agreement and the European Union have the overall effect of removing barriers to international trade. Privatization efforts result in the availability of existing infrastructure for use by multinationals attempting to enter a new market. Eldridge concludes that "for the foreseeable future the operations of multinational corporations… [END OF PREVIEW]

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