Multinational companies

Multinational companies (MNCs)
= firms that own, control, or manage production or distribution facilities in several countries

⇒ 25% of world output

Problems created by MNCs in the home country

(-) loss of unskilled and semiskilled jobs	(+) creation of some higher qualified jobs at home, i.e. clerical, managerial, technical
	(+) securing of jobs at home through improved competitiveness
(-) export of advanced technology	(+) tendency of MNCs to concentrate R+D in the home nation
(-) loss of taxes

Problems created by MNCs in the host country

(-) domination of host countries' economies
→ foreign affiliate acts according to MNC's and home country's policies

• e.g. no exports to Iran

→ Effect on national tastes

• e.g. Coca-Cola, McDonald's

(-) inflow and outflow of capital not controllable

(-) brain-drain to home nation
because of concentration of R+D there
⇒ keeps host country technologically dependent

(-) crowding-out (buying-up) of domestic industries
→ Very bad for emerging industries in developing countries
⇒ Trend monopolies /oligopolies

 

Special problems for developing countries

(-) overexploitation of natural resources

(-) use of capital-intensive production
(instead of employing host countries' workers)

(-) lack of training of local labour

(-) Exploitation of poor standards for working conditions
→low wages, long working-hours, poor safety standards etc.

(-) creation of "enclave" economies
→ foreign investors just exploit the natural resources, but don't employ many local workers, profits are repatriated

Counter-measures by host countries

Canada: higher taxes on foreign affiliates with less than 25% Canadian interest

India: specification of sectors where direct FI is allowed + rules for operation

Some developing/ emerging countries:

• only joint-ventures allowed, i.e. with local equity participation, e.g. China
• rules for:
  • transfer of technology
  • training of domestic labour
  • limits on the use of imported goods
  • remission of profits
  • environmental standards

Severe step : Nationalization of foreign production facilities
→ disadvantage : bad influence on the future flow of direct FI

Efforts : International code of conduct for MNCs

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