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The Effect of MNCs in Developing Countries Essay

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In the current era of globalization, the relations between human and others are necessary to fulfill their needs in life every day because human is essentially unable to live alone and need help from others. This situation also applies in the cooperative relations between States in which one State and the other State need each other to fulfill their needs in the aspect of political, economic, social and cultural. With the globalization, the world will be growing rapidly into the international realm. This development can be proved by the existence of Multinational Corporation (MNC) which is a new development in the aspect of the international political economy that emerged after World War II in which Multinational Corporation is working in international business.

Multinational Corporation is a tangible entity that in some way will impact a home country, which is where its main headquarters is located, and one or more host countries, the recipients of incoming FDI CITATION Ste071 \l 1033 (Cohen, 2007). In addition, John H. Dunning has an argument about the meaning of MNC. He said that “A multinational corporation is an enterprise that engages in foreign direct investment (FDI) and owns or controls value-adding activities in more than one country” CITATION Dun93 \l 1033 (Dunning, 1993).

As it is known that developing countries are countries with the majority of the population have the low level of welfare and quality of life or can be said in the stage of development. There are some conditions why a country can be called as developing countries, such as less education, literacy rate, less income, women have higher fertility rate, etc. According to United Nation, there are many countries which include developing countries, such as most countries in Africa (Morocco, Mauritania, Zimbabwe, Central African Republic, etc.), most Asian countries (Indonesia, India, Myanmar, Kuwait, etc.), and Latin America and some countries in the Caribbean Sea (Paraguay, Mexico, Panama, Venezuela, etc.) CITATION 14ht \l 1033 (World Economic Situation and Prospect: Country Classification, 2014).

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In accordance with the explanation above, the welfare of people in developing countries is still in the development stage both in social and economic aspects. Thus, the people in developing countries are not yet fully prosperous. In fact, it causes many problems to occur in developing countries such as poverty and unemployment. Generally, welfare is the condition of society in a State of affluence and peace. In this case, the welfare to be discussed more focus on social and economic welfare. Social welfare is a human action in order to fulfill the needs in their life to improve the quality of life better. According to Rukminto: Social welfare is an applied science that examines and develops frameworks and methodologies that can be utilized to improve the quality of life or condition of society, among others through the management of social problems, the fulfillment of the needs of community life, and maximize the opportunity of community members to develop CITATION Isb05 \l 1033 (Adi, 2005).

Meanwhile, economic welfare is the welfare that can be seen from the level of quality of people’s lives in the aspect of the economy which is the one important thing to determine economic welfare. The level of quality of people’s lives can be determined by some indicators that reflect the welfare of the people such as per capita income level, the number of literate people, infant mortality rate, etc.

The relationship between MNCs and Developing Countries

In this essay, I will focus on the positive and negative impact of MNCs in developing countries, it will be given a good impact for the social welfare in the aspect of the economy and society or not. As I already explained that MNCs is a company that has a great influence for the society, especially in developing countries where the influence can determine the level of quality of people’s in many aspects such as economic and social. The quality of people’s lives in developing countries is still a concern because there are still some problems that occur such as poverty and unemployment.

The influence of MNCs in developing countries is closely related to the economic and social interests of the people in that developing country. Multinational corporations can have positive and negative influences whereby those influences can determine the quality of the people’s welfare. Like what has been felt by the most people in developing countries that MNCs have been able to create new jobs for some people that do not have a job. This matter can reduce the unemployment rate in which unemployment is one of the major problems that exist in developing countries. With the creation of these jobs, the level of income a person will increase and reduce social crimes that committed by people who do not have a job. In addition, the positive influence of MNCs is the advancement of technology in developing countries. The technology that used by Multinational Corporations nowadays is modern. The modern technology can affect the speed and accuracy of work so that the work will be done fast and easily.

Besides the positive effects, MNCs also have negative effects on developing countries, such as an environmental pollution (water and air pollution) that caused by the waste of production from the company and also the other negative effect is the social gap between the rich and the poor in developing countries.

After we know about the positive and negative influences of MNCs in developing countries, then I will explain the advantage and disadvantage of the existing MNCs in developing countries. The advantage is about the broader market base that means by opening establishments or offices in several countries, multinationals increase their chances of reaching out to customers on a global scale, a benefit which other companies limited to regional offices and establishments do not have. The access to more customers gives them more opportunities to develop and cater their products and services that will fit the needs of potential customers.

However, the disadvantage of the existing MNCs is a potential abuse of workers means that Multinational companies often invest in developing countries where they can take advantage of cheaper labor. Some MNCs prefer to put up branches in these parts of the world where there are no stringent policies in labor and where people need jobs because these multinationals can demand cheaper labor and lesser healthcare benefits CITATION 7Ad16 \l 1033 (7 Advantages and Disadvantages of Multinational Corporations, 2016).

Here, I give some examples case from the impact of MNCs in developing countries. Firstly, the example is MNCs in Pakistan. Even before Pakistan got independent, a foreign investment was made by the Steel Brothers in 1913 at Morgan, Rawalpindi. This is now known by the name of Attock Oil. The year 1932 saw another foreign investment from the German firm, Siemens. The year 1935 saw Imperial Chemical Industries investing in Khewra. Just after independence, Pakistan attracted companies like Unilever, Shell, Burma oil, Imperial Tobacco, and many noted banks that lined up to invest in the newly born state. A large number of multinationals, over the years, have extensively invested in Pakistan. The US and UK lead investments amount up to $190 million and $ 122 million. While, other countries that have invested in Pakistan are: Netherlands, UAE, Switzerland, Singapore, Hong Kong, Japan, and South Korea. Furthermore, an attraction for these MNCs in Pakistan is due to following reasons such as geo-strategic location and population factor, availability of cheap labor, lack of regulation and exchange rate, etc.

Moreover, Pakistan is also a developing country and has been plagued by several issues; but owing to increase in the consumer demands, it is pertinent to attract MNCs and foreign investments to meet the needs of the population and also to boost the economy. About 30,000 MNCs are working in Pakistan, out of which 600 have foreign capitals and are making huge profits for the economy. Political instability and governance issues have derailed the process of economic development, and many foreign corporations hesitate in investing in Pakistan due to the threats of terrorism. Therefore, the government of Pakistan should take steps to chalk out policies favoring foreign corporations as this will positively affect the economic growth of the country CITATION Fau15 \l 1033 (Ghani, 2015).

The second example is in Nigeria, the activities of multinational companies have been identified as questionable or even unethical because of the harms they have caused on the society. Because of their formidable resource base, they dominate the economy, straddle the indigenous entrepreneur and in the process create a monopoly. In the oil sector which is the economic mainstay in Nigeria, these corporations perpetrate heinous activities such as pollution of the environment, inadequate technology transfer, violation of human rights, blunt refusal to discharge their social responsibilities, gas flaring which destroys wildlife, seafood’s and farmland, especially in the Niger-Delta region without adequate compensation. Equally, the activities of these multinational corporations have led to increases in anti-social activities like drug abuses, prostitution, kidnapping, armed robbery, and murder etc. Nevertheless, those negative impacts of MNCs on Nigerian economy can be reduced by Nigerian government through the instrumentality of government active intervention and honest participation, strict penalties and sanctions, corporate environmental policy, environmental scanning, and employee training or involvement.

As it is known that Multinational corporations are the major vehicles by which globalization is affecting businesses in different parts of the world. Therefore, Nigeria as a developing country can only benefit tremendously from operations of these multinationals if serious considerations are given to the environment in which they operate. Since these corporations are composed of the society, they must subject themselves to the fair requirements of the society, for their relationship is paramount and reciprocal. A strong tie must exist between government and various multinationals operating in Nigeria to ensure maximum cooperation and peaceful coexistence CITATION Pro16 \l 1033 (Prof. J. Eluka, 2016).

Conclusion

In this conclusion, MNCs prefer to invest in developing countries because of low labor costs, easy access to natural resources and as a potential market for distributing their products. However, I feel like Multinational Corporations not only give the positive effects but, any negative effects are still being provided by the MNCs itself. So far MNCs can be helpful for developing countries only when they are kept under control such as they create new jobs for unemployment that can reduce the poverty and crimes while they still give a bad impact from that company but, the country can overcome the negative impact by the control from a government with many ways. Therefore, we should not give incentives to the MNCs only because they are coming from some powerful advanced countries. MNCs should face same rules and regulations as the domestic industries of the developing countries are facing.

Bibliography

BIBLIOGRAPHY 7 Advantages and Disadvantages of Multinational Corporations. (2016, April 5). Retrieved from Future of Working: http://futureofworking.com/7-advantages-and-disadvantages-of-multinational-corporations/
Adi, I. R. (2005). Ilmu Kesejahteraan Sosial dan Pekerja Social. Depok: FISIP UI Press.
Cohen, S. D. (2007). Multinational Corporations and Foreign Direct Investment: Avoiding Simplicity, Embracing Complexity. New York: Oxford University Press.
Dunning, J. H. (1993). Multinational Enterprises and the Global Economy. MA: Addison-Wesley.
Ghani, F. (2015). Economic Role of MNCs in Developing Countries: A Case Study of Pakistan. The Journal of Political Science, 73-75.
Prof. J. Eluka, N.-O. P. (2016). Multinational Corporations and Their Effects on Nigerian. European Journal of Business and Management, 60-66.
World Economic Situation and Prospect: Country Classification. (2014). Retrieved November 2, 2017, from United Nations: http://www.un.org/en/development/desa/policy/wesp/wesp_current/2014wesp_country_classification.pdf

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