18 Apr ’14
A multinational corporation is essentially a business or company that operates in one or several countries other than the country it is managed from. Generally, any company that derives a quarter or more of its revenue from operating outside of its home country is considered a multinational corporation.
According to UN data, some 35,000 companies have direct investment in foreign countries, and the largest 100 of them control about 40% of world trade.
Multinational corporations have three stages of growth:
1. Export Stage- The company establishes initial inquiries and expands its export sales
2. Foreign Production Stage- the company chooses foreign production as a method of delivering goods to foreign markets
3. Multinational Stage- the company becomes a multinational corporation and finds the best foreign locations for planning, organizing, financing, and production.
There are benefits to the existence of multinational corporations, as they help provide jobs and
wealth to communities around the world. Investment by these companies provide foreign currency to developing economies. Most multinational corporations have large sizes and scales of operation, enabling them to benefit from economies of scale and lower the average costs and prices to consumers.
While multinational corporations bring jobs and a source of income to communities, there are many criticisms of these companies. They are often most interested in making a profit, even at the expense of the consumer. In order to make the best profit, they have monopoly power over the industry. Because they are so large and have a strong hold over the markets, multinational corporations often run smaller, family-run or local firms out of business because they simply cannot compete with large market prices. An example is the presence of a Starbucks in a small town. Smaller locally-owned coffee shops cannot compete with the prices and market dominance a Starbucks has, which results in the smaller shop going out of business and less diversity in the market overall.
Multinational corporations often ignore environmental laws and regulations, or choose foreign locations that do not have strict environmental policies. These large corporations contribute to pollution and mass use of non-renewable resources.
One of the biggest complaints against multinational corporations is the idea that they use “slave labor,” or workers who are paid an extremely small amount by Western standards, to run their shops and factories.
An article about globalization from The Economist, states that “multinationals pay sweatshop wages to their workers in developing countries. Regulation forcing them to pay higher wages is demanded…The NGOs, the reformed multinationals and enlightened rich-country governments propose tough rules on third-world factory wages, back up by trade barriers to keep out imports from countries that do not comply…the third-world workers displaced from locally owned factories explain to their children why the West’s new deal for the victims of capitalism requires them to starve.”
Multinational corporations bring jobs to developing communities, but they also cause the displacement of people from their homes and jobs to accommodate their facilities. They are seen as both a measure for progress and a step in the wrong direction at the same time, all depending on who is doing the measuring.
This post was really interesting I wasn’t too familiar with how multinational corporations grew and these three stages put it into perspective. I entirely agree with the negative aspects especially in term of destroying local businesses. Relating to what we have addressed in class this is just another example of how Western ideals can truly ruin a culture that isn’t based off of these mass money making machines. In terms of the environmental aspect, I wonder what the UN is doing to monitor their pollution levels, they should certainly be held to the same standards as other countries and businesses.
Multinational organizations are very interesting to look at, for they are involved at a global scale in various sectors. These include economics, ethics, environmentally friendly policies and locality. More often than not, it seems that multinational organizations believe they are doing much financial good, but in reality they are polluting the environment, taking away local businesses and disregard ethics for cheap labor and a quick profit instead. I completely agree that multinational organizations are both a step forward and backward for all, developing nations in particular.
I definitely think there’s a way for multinational corporations to exist in the world without causing a strain on the economy. They certainly have the reach and power to work with smaller shops and chains instead of monopolizing and gutting them. Hopefully I’ll actually live to see one of these companies exist that people just don’t call “evil” all the time.