Assignment Of Multinational Corporations (MNCs)

Submitted By: Tariq Mahmood Asghar Roll No. 77 MBA (A) B-1, Semester 3rd

Submitted To: Sir Zain A.Malik

COMSATS Institute Of Information Technology Sahiwal

INTRODUCTION TO MNCs
An Enterprise, which allocates company resources without regards to national frontiers, but is nationally based in terms of ownership and top management. It comprise of three words multi, national and corporations. These words together means that corporations which have established their offices to increase the interaction either by their own efforts or by collaborations with other companies. Thus Multinational represents highest level of overseas involvement and is characterized by global strategy of investment, production and distribution. MNCs are enterprise which owns or controls production or service facilities outside their home country. A corporation that has its facilities and other assets in at least one country other than its home country. Such companies have offices and/or factories in different countries and usually have a centralized head office where they co-ordinate global management. Very large multinationals have budgets that exceed those of many small countries. Sometimes referred to as a "transnational corporation". Nearly all major multinationals are American, Japanese or Western

European, such as Nike, Coca-Cola, Wal-Mart, AOL, Toshiba, Honda and BMW. Advocates of multinationals say they create jobs and wealth and improve technology in countries that are in need of such development. On the other hand, critics say multinationals can have undue political influence over governments, can exploit developing nations as well as create job losses in their own home countries.

CLASSIFICATION OF MNCs BY BEHAVIOR

Ethnocentric: These are the type of MNCs which have strong orientation towards home country. This means that home country people are considered as superior and allocated all key posts. Polycentric: Just opposite to Ethnocentric polycentric type of MNCs has strong orientation towards host country where few key people are nationals and remaining are from the host country. Regiocentric and Geocentric: These MNCs have their concentration in whole world and they make selection for best employees whether they are from host country or home country it does not matter.

STRATEGIES OF MULTINATIONAL CORPORATIONS

The Strategies of Multinational Corporations towards Transition Economies There are four stylized strategies of MNCs today: 1/ outsourcing, 2/ market-seeking or demand-oriented FDI, 3/ production relocation in search of lower costs abroad, namely lower unit labour costs, 4/ a global strategy mixing and trading-off between the three previous strategies with an attempt at flexible worldwide location in order to implement global networking, global switching, and global focusing (Andreff 1996a).

Modes of Entry and Economic Impact of Multinational Corporations on Transition Economies Three modes of entry are usually distinguished: 1/ Greenfield investment and reinvested profits; 2/ merger and acquisition; 3/ the so-called 'new forms of investment', In the OECD parlance, which spread from joint venture to minority-owned affiliates, technical assistance, licensing, franchising, international subcontracting, industrial cooperation, turnkey projects and so on? MNCs prefer joint ventures to acquisition when the local firm bears heavy sunk costs, when they can access to knowledge or tangible assets of local firms and when they hold up important technological or organizational advantages. In transition economies, acquisitions are mostly related to the privatization process and are undertaken by MNCs with capabilities to restructure local plants. The cumulative FDI related to privatization peaked up in 1995 when it reached 60% of overall FDI in the region (73% in Hungary). Afterwards, it strongly dropped and the major tendency, at least in the CEECs, is towards Greenfield investment, contrasting with a worldwide trend towards merger and acquisition FDI (Meyer 1998, UNCTAD 2000). MNCs with specific assets and unique competencies prefer Greenfield operations. The rise of the latter probably means an inflow of competencies and assets, brought by MNCs, likely to adapt transition economies to the requirements of globalization.

EMERGENCE OF NEO-IMPERIALISM AND THE PERILS CONFRONTING NATURAL RESOURCES OF DEVELOPING NATIONS
Hong Kong and Macao may have been last of the few territories of the old imperialistic regimes, i.e. the Europeans. With the end of World War II, the conquerors began to retreat, as a result many nations became freed, and a new world order governed by trade emerged. When one of the last nations was getting freedom from the imperialistic force a new form of neoimperialism force was burgeoning, like old bottle new wine. The name of the new colonial force is globalization, and the riders of this force are the Europeans, Americans and few Asian nations. With its inception during the 1980s, globalization has taken in many forms, the latest being the World Trade Organization (WTO) the central commander of globalization. Trade and economy are its weapons. Trade and trading among nations is the leading factor in establishing friendly relationships or confrontations sometimes resulting in the conquering of defeated nations. The new colonial empire globalization and its many agents have proven fruitful to its inceptors and deadly to the developing nations. The failure of the Cancun talks of the WTO on September 2003, the resentment of the developing nations and the hegemonic attitudes of the northern bloc, proves that globalization indeed is the new colonial power. In the name of economic reforms, human rights and freedom of expressions, forces far away at Washington, Geneva and London, are influencing the activities of developing nations, the major motivation being protecting their self-interests at the cost of other weaker nations resources. Most of the top 15 third world debtors have tripled the rate of exploitation of their forests since the late 1970s. This is related to the survival imperative of poor, landless people who depend on

forest resources and the pressing need of nations to gain foreign exchange for debt servicing (Bello 1994). The major agents of globalization are trade, Trade Related Intellectual Property Rights (TRIPS), Multinational Companies (MNCs), tourism, and agriculture sectors. Globalization presents a new opportunity for developing countries by creating new opportunities in various sectors economy, employment, innovations, trade etc., but also cloaks new risks for them. WTO sidelines environmental rules, health safeguards and labor standards to provide Transnational Companies (TNCs) with a cheap supply of labor and natural resources (Thacker 2003). TNCs/ MNCs: Transnational Corporations or Multinational Companies (MNCs) are the missionary of globalization and the major weapon of neo-imperialistic states in expanding their influence to wider areas and dominating local economies and power with their economic robust. With a few exceptions these TNCs have proven as the agents of environmental degradation and destroying local systems. For TNCs dominate 80% of land worldwide cultivated for export crops; 20 firms account for 90% of pesticide sales, manufacture toxic chemicals like PCBs, DDT and dioxins and dominate the trade in natural resources (TWN 1992). The failure of international agency to monitor and regulate TNCs, and the moves instead to widen their rights and access, have led to spectacular rise in their power and authority (TWN 1992), enabling them for wider outreach and dominating the developing nations. The fact is TNCs account for the largest part of the global economic activity and are the main entities responsible for the global environment crisis. In recent years TNCs have concentrated on collecting seeds of various crops across the world intended to control the global market and production. As a result there is a rice bank in Philippines and wheat banks in New Mexico and Colorado, housing two million kinds of rice and wheat seeds. For example

the American company Escogenetics has patented all coffee seeds genetically produced (Khadka 2000). Such accruing means weaker nations losing their rights of the crops and, in turn, spends their income in gaining access to the expensive seed source.

BENEFITS OF MULTINATIONAL CORPORATIONS

Create wealth and jobs around the world. Their size enables them to Benefit from Economies of scale enabling lower costs and prices for consumers. Large Profits can be used for research & Development. For example, oil exploration is costly and risky which could only be taken out because they make high profits. Ensure minimum standards. The success of multinationals is often because consumers like to buy goods and services where they can rely on minimum standards i.e. if you visit any country you know that the Starbucks coffee shop will give something you are fairly familiar with. It may not be the best coffee in the district, but, it wont be the worst. People like the security of knowing what to expect.

CRITICISMS OF MULTINATIONAL CORPORATIONS

Companies interested in profit at the expense of the consumer. Multinational companies often have monopoly power which enables them to make excess profit. For example, Shell made profits of 14bn last year Their market dominance makes it difficult for local small firms to thrive. For example, it is argued that big supermarkets are squeezing the margins of local corner shops leading to less diversity.

In the pursuit of profit, Multinational companies often contribute to pollution and use of non renewable resources which is putting the environment under threat.

MNCs have been criticized for using slave labor workers who are paid a pittance by Western standards

CONCLUDING COMMENTS
The role and impact of multinational corporations, and the degree to which they can dictate outcomes to their advantage, have evolved with the changes that have occurred over the last 50 years in the prevailing economic policy regime. In the post-war decades, multinational companies enjoyed a profile and political significance that reflected policy makers' belief that the future lay with big organizations - in both the private sector and the public sector that had outgrown market forces and could control their own commercial environments. The disappointing outcomes of this approach have served to show that 'bigness' in itself confers no competitive advantage. We have consequently moved away from misconceived policies of corporatism and dirigisme to an understanding of the causes of the wealth of nations which tells us that multinational companies are, broadly speaking, as subject to market forces (and also to political forces) as other producers. They are important players, but not necessarily more important, for good or ill, than other economic entities that evolve spontaneously. We have learned that big is not necessarily best: consumers' interests are served simply by efficient businesses, and these vary enormously in size. Equally, our present understanding of public policy shows us how governments can promote (or, if they insist, undermine) the potential benefits of the international activities of businesses.

Imposing special burdens on multinational companies would risk scaring off foreign investment along with its potential benefits. By generating hostility between us and our trading partners and the possibility of retaliation, it would also diminish our economic and political sovereignty. Similarly, chasing the benefits of foreign investment with concessions like tax breaks and import protection would be self-defeating, would transfer wealth from New Zealand citizens to the shareholders of multinational companies, and would weaken our national sovereignty by encouraging multinational companies to play different countries off against each other in their search for favors. In a context of globalization, any potential (or actual) host country has a trade-off between a restrictive or an attractive policy towards MNCs and FDI. The biggest apparent benefit drawn from a restrictive policy is economic (and somewhat political) independence from abroad. On the other hand, the host country remains cut, to some extent, from the outcome of international technological progress, international producer norms and international living standards (and fashions of course). Such isolation from the world technical and trade flows has often been assessed as a major cause for the collapse of centrally planned economy in Eastern Europe. Moreover, the least open countries to FDI in the world are recruited among sub-Saharian countries and the poorest Asian economies. The question is thus raised to know whether closing the door to FDI is more or less damageable for the host country economic development than an attractiveness policy. In other words, does the old theory of imperialism still hold (FDI and MNCs exploit the host developing countries)? Or should not we think - in a context of globalization of a theoretical renewal in which MNCs' domination is not channelled through their FDI flows, but instead through their outrageous bargaining power with the nation-states and their capacity to sever capital flows to any "not enough friendly" country?

I have tried to highlight the role of MNCs as agents of imperialistic exploitation. We suggest that the exploitative tendencies of MNCs work through their manipulation of nation states and the regime of intellectual property rights, their role in the exacerbation of inequalities between and within nations, their appropriation of local knowledges, and by increasing the power distances between headquarters and subsidiaries. The control of MNCs is currently beyond the coercive power of any national institution, since MNCs are often more powerful than the nation states in which they operate. Likewise, international regimes like the IMF, the WTO and the World Bank are currently co-opted by MNCs to a point where the task of controlling them cannot be entrusted to these beholden institutions. Two legitimate theoretical issues arises upon reading our analysis of the negative effects of MNCs: why do these corporations participate in such a patterned behavior that produces negative consequences for a large section of the world population, and is our analysis not dismissive of the positive impact of MNCs in different parts of the world? In brief response to the first issue, this analysis is not merely of the effects of one corporation or of behavior over a short time-span, but the impact over a long time of many corporations, not necessarily acting in coordination. Nevertheless, the negative effects of MNCs can be collectively attributed to the growing power disparity between global capital and local control mechanisms. Nation states or communities are increasingly powerless to place checks and balances on MNCs. To use the language of game theory, exploitative behaviors by MNC, despite their negative long-term impacts on MNC reputations, constitute equilibrium in terms of behavior. In the absence of effective governance, such exploitative behavior becomes a short-term normative in the economic logic of the MNC.

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