To what extent do TNCs bring about more advantages than

disadvantages in LDCs/host countries?

TNCs in general, have their headquarters centred in DCs and their manufacturing
factories spread out in LDCs. By outsourcing and offshoring their resources to
LDCs, TNCs bring both advantages and disadvantages to LDCs in terms of socioeconomic and environmental aspects. However, the degree of advantages
depends on various factors. Generally, TNCs bring about more advantages than
disadvantages in mature NIEs and RICs than least developed countries, and
provided that there are effective governments as well as less exploitative TNCs to
maximise the positive impacts and minimise the negative impacts.
Socio-economically, TNCs bring inward foreign direct investment (FDI) to
LDC. Through outsourcing and offshoring of transnational corporation (TNC)
activities from DCs to LDCs, more jobs are created in labour intensive
manufacturing production centres in core regions of urban areas. Through
cumulative causation, the increased employment rates generate more personal
income of locals, leading to a stronger purchasing power and increased demand
for goods and services. Taxes paid by TNCs enable the government to invest in the
development of infrastructure, such as transport, education and healthcare. The
growth in manufacturing industry also creates backward linkages to primary
industries providing raw materials or component part and forward linkages to
tertiary industries which further process the product. Hence the multiplier effect
due to positive spinoffs in the economy will create greater distribution of GNP of
the host country. The launch of the BMW Group assembly plant in Rayong,
Thailand in the year 2000 has created backward linkages to rubber and steel
industries and forward linkages to logistics and marketing industries in order to
support its automobile industry, leading to an overall boom of Thailands economy.
However, the manufacturing industry outsourced is uneven both between
LDCs and within a LDC. TNCs often selectively invest in NIEs and RIEs while
bypassing least developed countries. For some of the least developed countries,
there are currently substantial local internal problems of governance, corruption
and inhuman treatment. These together with the lack of infrastructure and low
skilled workforce dissuade TNCs investing there, causing themselves to be
marginalised. China received $117.6 billion FDI in 2013, which is 17 times of that
received by Nigeria ($7 billion). However, it should be noted that there is a current
trend of mature NIEs and RICs investing in African countries. TNCs from more
developed LDCs setting up branches in African countries offer FDI well diversified
across a number of sectors, and thus provide catch-up opportunities to even the
poorest countries in Africa. Mature NIEs and RICs themselves also gain closer
proximity to larger markets and natural resources, hence it is a win-win situation
for both parties. China being Zambias no.1 trading partner and investor, has

created over 10,000 jobs for the locals in mining, manufacturing and construction.
Furthermore, FDI received may indirectly increase the income gap within
a country. For example, by selectively investing in the Southeast and coastal
cities of China, TNCs are responsible for creating urban bias to the economic
development in China. This is marked by Chinas high Gini coefficient of 0.421.
Nevertheless, a more effective government is generally more able to alleviate the
issue of income inequality through effective policies. For example, Chinese
government has established Economic and Technology Development Zones
(ETDZs) in rural areas. Lianyungang, a prefectural level city located in Jiangsu
Province, China, is one of the first batch of state-level ETDZs. In 2009, ETDZ itself
accounted for 16.8% of Lianyungangs GDP, which successfully reduce the income
gap between Lianyungang and major cities in Jiangsu from 2.57:1 in 1998 to
2.21:1 in 2012. Therefore, although TNCs may bring FDI to LDCs to help
LDCs boost their economies, the manufacturing industry outsourced is
uneven both within and across countries. However, mature NIEs and RICs
with effective governments are able to come up with policies to reduce
income inequalities. As these countries develop over time, they may set
up TNCs in least developed countries to reap off greater profits. This
provides catch-up opportunities for least developed countries as well.
TNCs may as well locate their regional headquarters in mature NIEs.
Compared to assembly plants in other LDCs, mature NIEs with the required capital,
infrastructure, accessibility and potential for growth are able to reap off greater
benefits from these headquarter activities and at the same time protect the local
industries. Singapore, is the headquarter for many regional hubs such as LinkedIn
and Roll-Royces Marine. Since NIEs have a wider economic base and do not
depend entirely on TNCs to boost economy, both the government and TNCs will
have to reach a consensus rather than going with the whims of TNCs. This allows
host economies to reach a compromise which is more beneficial to its country. For
example, Nestle in Korea has been required to use Korean-made machinery. This is
in order to increase the multiplier effect of TNCs on the local economy, reducing
profit leakage overseas.
On the contrary, due to a lower concentration of high-skilled labour force in least
developed LDCs, TNCs usually allocate fewer skilled jobs with lower wages to the
locals. Hence, there is a larger profit leakage from host countries to the country of
origin. Around 60% of the income generated by tourism goes to TNCs that own
many of Thailands hotels and restaurant chains. These countries desperately
require FDI to boost the local economy. As a result, they may suppress unions
organising to hold down wages and labour standards. To sum up, mature NIEs
which offer larger talent pools and better infrastructure are able to maximise the
profit due to TNCs setting up headquarters there. Disadvantages brought by TNCs
are minimised to a large extent, as the governments and TNCs will have to reach a
consensus and hence they achieve a certain degree of interdependence. On the

other hand, LDCs with its low-skilled labour and poor infrastructure are
unable to retain the profit generated. Governments overreliance on FDI
brought by the TNCs may also cause many social issues.
TNCs may bring much environmental harm to LDCs. Oftentimes, many TNCs
choose to shift their environmentally harmful and unsafe operations to countries
that have less stringent environmental regulations. These operations often result
in pollutions, which may also indirectly cause the locals to suffer. Shell in Nigeria
used to conduct gas flaring across the Niger Delta for more than twenty years,
which has destroyed land and fishing-related industries. Mature NIEs, on the
other hand, usually has a larger bargaining power and put up more
stringent environmental laws to prevent the environmental exploitation
by TNCs. In Singapore, Shells flaring is subject to regulatory limits set by the
National Environment Agency (NEA) on emissions and limits on density and
duration of allowable smoke.
Also, less exploitative TNCs may invest in corporate social responsibility
(CSR) projects that look into environmental conservation. In 2009 Toyota
embarked on a project to plant 40,000 m of trees in India, and promised to
periodically monitor the growth of the trees. However, many CSR are aimed to
improve companys image rather than protect the environment. Hence
the positive effects on the environment are limited. Kala Dera, India
reported a rapid decline in groundwater levels in 2004 shortly after Coca-Cola
started its bottling operations there. Although the TNC claimed that it has
recharged five times the amount of water it has used through rainwater
harvesting, this was however a false statement, as Kala Dera receives too little
rainfall to be harvested.
In conclusion, TNCs bring about both advantages and disadvantages to LDCs on
socio-economic and environmental aspects. The extent of the effect is determined
by a combination of other factors. Generally, TNCs bring about more advantages
than disadvantages to a LDC only provided that the level of development of the
host country is high, there is effective governance and the TNCs are less
exploitative.