“Is be supported by case studies which will
“Is the growing presence of multi-nationals in the global economy a force for good or cause for concern?” This essay aims to evaluate the effectiveness of multi-nationals in the global economy and to figure out as to whether their presence is a force for good or a cause for concern. This will done through looking at some of the arguments in support of MNC’s and some of the arguments that have been proposes against them. The arguments will be supported by case studies which will act as evidence to show the effectiveness or ineffectiveness of MNC’s in general. Before summarising some of the arguments that will be mentioned further in the essay, it is important to define what Multinational corporation (MNC) is and some of the key characteristics. Smelser & Baltes (2001, p.10197), defines MNC’s as corporations whose activities are located in more than one country which is generally in countries where there is cheap labour and a large amount of resources. Three key characteristics of MNC’s that have contributed to the growth of MNC’s in the global economy include market expansion, financial assets and technological superiority. All of which are all considered benefical for host countries and the global economy in general. As the GDP in individual countries increase, the demand for goods and services increase which is why MNC’s are able to exploit their expanding markets. Financial assets is the second factor, MNC’s are able to provide the financial resource and easy access to foreign capital markets which is discussed further in the essay. In addition to this, MNC’s are able to provide easy mobilisation of quality of resources. The final factor is technological superiority, technology transfer takes place as MNC’s have a strong research and development team behind them who produce the processes that are used to help other countries develop advance technology and face competitive world markets (“reasons for the growth of MNC”, n.d.). As the involvement of MNC’s increase in several countries, there is some debate as to whether it is beneficial or detrimental. Some argue that with the use of technology transfer and FDI in particular, host countries’ economies are enhanced which essentially contributed to the global economy in the long run. However, there are some side effects which has negative implications on certain countries especially those who are within the transitional stage. Although, there is arguments for both sides it still remains difficult to draw a conclusion as it depends on the MNC itself and the host country they are located in. MNC’s presence within the global economy has increased dramatically over the last few years, government within certain countries has advocated the need for MNC’s to get involved in their countries and the need for FDI. The connection between FDI and exports is a major argument in support of MNC’s. In terms of FDI in particular, by bringing in FDI into host countries, it has led to the establishment of an interconnection between developing and developed regions which is essential for enhancing the global economy. This integration has helped promote efficiency and growth within host countries. In addition to this, it can be argued that the extra investment that host countries receive through MNC’s leads to an increased need for labour and the development and dissemination of technology in both the nature of products and the methods of production and finally it opens the markets of some of these isolated countries (“Foreign”, p.34). This will be further developed in the essay. In terms of exports, with reference to India whose domestic market was quite narrow, with the increasing involvement of MNC’s and an increased in trade they have been able to gain better access to external and more extensive markets which makes them a lot more competitive internationally (Emde, 1999, p.5.). In addition to this, the inflow of FDI has not only brought “capital, management expertise and production technology”, but also it has significantly “spurred industrial development through technology spillovers” (Zhu, n.d., p.1.) which will be further discussed in the next section. One of the key reasons why MNC’s are generally seen as a force for good is due to the fact they help enhance the economy through the concept of technology transfer and technology spillover. Sonmez (2013, p. 11) defines technology transfer as a “process where technology is intentionally transmitted between countries or firms”. As stated by Aggarwal (1978), ” a major channel for technology transfer among different countries is foreign direct investment (FDI)”. Through FDI, MNC’s are able to use the strategy of technology transfer. Depending on the requirements of individual host countries, the type of technology that is transferred varies for example it could be the transfer of specific technologies such as machinery- equipment, patents, technological assistance and licensing and management agreements*. The second type of technology transfer is assistance through the transfer of knowledge, labour mobility, skills and experiences. By transferring knowledge and educating individuals on using processes that work and transferring knowledges on products, companies are able to increase productivity of other local firms that operate in similar technology areas (Bloom, Schanterman & Reenen, 2010, p.2) which is beneficial for the global economy. Both types of technology are seen as a driving force for economic development especially within developing countries such as China and India (Davis, Elisa & Tang et al, 2014, p.2). Using China as an example, Chen & Sun (2000) conducted a survey looking at technology imports between 1982 to 1992 involving around 200 companies and factories in China’s mechanical industry. The results from the survey showed that there was a significant increase in technology transfers which contributed to China’s economy. Another prime example of where technology transfers by MNC’s has proven to be effective is by CISCO who are an American MNC that specialise in different types of computer networking systems. Davis, Elisa & Tang et al, 2014, p.8) argued that CISCO transferred complex operations and improved the technology which increased productivity in China. Their study showed CISCO as an MNC helped propel their global growth. Some critics may argue that this effects local businesses however in some cases, MNC’s are able to eliminate excess costs and add additional new features to local businesses helping them to run more efficiently through technology transfer. With that being said by bringing in new technology whether it is through machinery or knowledge and skills, it can be argued that the strategy of technology transfer is essentially one of the most valuable contributions that MNC’s offer to host countries making it a force for good. Another way in which MNC’s are a force for good is through the rise of employment. As mentioned before, the core feature of MNC’s is FDI which has an essential role in employment especially within developing and transition countries (Brancu & Bibu, 2014). Kitche (2000) conducted an investigation into some of the less developed countries where MNC’s are heavily involved. His overall results showed that even though wages may seem to be low whilst working for some of the MNC’s, locals still found the job preferable as it was a lot more beneficial and consistent in comparison to working as a subsistence farmer with even lower income. By investing in these areas and utilising factors of production, MNC’s have contributed to 65% of non-government employment opportunities at any given country of host (Reid, 2001). By providing employment opportunities in these host countries, the profit and income that they generate flows within the host countries economy which will then contribute to the overall global economy as it is a part of the foreign capital flow moving between countries (Tirimba & Macharia, 2014, p.2). As mentioned before MNC’s are considered as important sources of employment, valuable channels of technology transfer and diversifies the host countries economy (Giuliani & Macchi, 2013, p.2). Critics of MNC’s point to a variety of features that they view as detrimental rather than being a force for good especially in the presence of developing countries. From the examples used above, it is evident that technology transfer is a successful strategy in improving the economy especially in developing countries. However, it can also have adverse effects on some countries especially those who struggle to adjust to the new technology that’s been transferred especially machinery. Critics such as Duncan, Webster (2008), point to the “limited degree to which foreign knowledge or technology is transferred or adapted in host countries”. In addition to this with the advancement of technology, there is a general fear amongst the local people that these MNC’s will no longer need as many employee’s which contributes to the rate of unemployment in hosts countries. As well as being an example of success, China also shows some limitations of MNC’s and technology transfer. Atkinson (2012) examined the several consequences using the development of the railroad industry in China. His study shows that the technology transferred by MNC’s can in some cases be used against them rather than being used to their own advantage. Although skills and knowledge are transferred across to locals, there is still some cases which show that some MNC’s prefer to take on the more advanced individuals from their origins as they are already trained and some are willing to move. As a result of this, unemployment still remains a huge problem. In addition to this, with the transfer of skills and knowledge in some cases it could lead to the concept of ‘brain drain’ which is the emigration of highly skilled and educated individuals. This is very common amongst developing countries such as India and China (“Brain drain”, 2014). Technology transfer is just one issue critics have a problem with. MNC’s also impact the social aspect in host countries through the conditions which host country employees work in and the wages they receive (Duncan, Webster ,). Moran (2002) stressed the importance of having to distinguish low wage and unskilled labour intensive industries from industries that employ more highly skilled workers. In support of this, several social activists and human rights organisations have criticises MNC’s for paying the local employees extremely low wages and subjecting them to “violations of certain universal social norms or standards governing their employment” (Brown, Deardoff & Stern, date, p.280). Majority of the cases that are used as evidence against MNC’s are directed at the U.S multi-national operations in clothing and footwear industries, there are some cases which also show the violations taking place in technological operations. According to the international trade union confederation report in 2012, in 140 countries MNC’s had violated collective labour rights (Mosley, 2011). As well as this, another significant case in this case was to do with Nike which is major MNC who has factories located in a number of countries such as India and China. Reports of abuses were reported in many of Nike’s supplier factories which created a lot of widespread public attention on the negativity of MNC’s. Some of the abuses included underpayment of wages, the use of child labour and exposure of workers to variety of chemicals (Locke, 2003). It is clearly evident that this is major issue globally and remove the spotlight surrounding some of the positive contributions that MNC’s have brought. The overall focus of this essay is to answer the question of whether the growing presence of multinational corporations in the global economy are good or something of concern? As the previous paragraphs suggest, MNC have contributed to the global economy significantly through the strategy of technology transfer, FDI and integration of domestic markets. From some of the case studies shown, it can be argued that MNC’s have been identified in a positive light especially due to an increase hosts countries GDP, employment and in some cases education. The skills and equipment transferred from MNC’s has in some ways helped local businesses as well as the multinational corporations by advancing their technology and increasing the quality of the products being produced. FDI has proven to be quite helpful in certain areas especially in the areas of enterprise and innovations. In addition to this it has helped foreign investors to get involved in certain countries markets which were previously seen as isolated. In support of this, it has allowed host countries that are generally less economically developed to establish connection with the more developed regions especially countries such as the U.S. There will still remain some debate as to whether MNC’s are completely a positive contribution to the global economy as there are still some drawbacks in the way they operate and the strategies they use. Factors such as human rights violations, brain drain, limited technology and abuse of trade markets are still detrimental factors which effects the economy of host countries and the global economy as a whole. As a result of this, it can be concluded that the answer is essentially as it depends, the opportunity exists for MNC’s to have both positive and negative implications as we have discussed but generally it depends on the multi-national corporation itself and the way in which their relationship is with host countries.