Name:Nisha Farooq Rollno: 12 Semister:7 Impact of Multinational Companies On Developing Countries

NAME:NISHA FAROOQ
ROLLNO: 12
Semister:7th
IMPACT OF MULTINATIONAL COMPANIES ON
DEVELOPING COUNTRIES.
ABSTARCT: Multinational corporations (MNCs) are enterprises which have
operations in more than one country. They manage production establishments or
deliver services in at least two countries. MNCs conduct a significant proportion of
their operation in other countries. Therefore, they can have influence on other
countries economic entire environment. The controversies whether MNCs help or
harm development especially of developing countries have been examined in this
paper. To attain this purpose, a brief definition of MNCs has been given.
Thereafter, some of the positive impacts as well as negative impacts of MNCs’
operation particularly in developing countries have been examined. Accordingly,
three case studies are presented that make evident the positive, negative, and
mixed impacts of multinational corporations on developing countries.
In this twenty-first century, MNC has become the central institution of developing
nations. A significant number of MNCs started their operations in developing
countries by the 1990s. The effects of their operations in developing countries are
now assessed quite differently from that was done in the past. MNCs benefit from
the lower labour costs and grants given by the government of developing
countries in order to attract these MNCs.Moreover, lower tax rates or tax
exemptions are also given to MNCs for a period in the developing countries. On
the other hand, these developing countries can also gain from the investment
made by these MNCs. MNCs can help reducing poverty, driving economic
growth, creating jobs that utilize local people, raise employment standards
by paying better wages than local firms pay. In addition, they can boost
economic development by transferring technology and knowledge, improve or
build up infrastructure, raise people’s standard of living. Overall, it might
seem that the developing countries gain from investments of MNCs. Is that
really true? Although MNCs have become omnipresent in the developing world,
there has always been an uncertainty about them, in both positive and negative
ways. Most of the MNCs take advantage of developing countries. They can be
guilty of making pollution or doing human rights abuse.
LITERATURE REVIEW: Recent advances in information technology, coupled

with deregulation and market liberalization worldwide, have fuelled
an unprecedented surge in the growth of MNCs.While some regard
them as ruthless exploiters, others view them as benevolent engines of
prosperity. But today’s multinationals bear little resemblance to their
ancestors. They are reinventing themselves in diverse ways that
confound the assumptions of critics and advocates alike (Stop ford,
1998). Theory and research concerning the process of multinational
firms have been given significant attention by many scholars and
researchers after the Second World War due to the increased cost of
production, and the imbalance of resources (e.g. Buckley &
Casson,1985; Dunning, 1993; Ghoshal, 1987; Hamel & Praha lad, 1990;
Ohmae, 1990; Praha lad &Doz, 1987; Rugman, 1981; Vernon, 1979).
Most of these studies were conducted in the well-developed
established countries namely North America, the Western
European Community, and Japan. There has been little empirical
study found on developing countries. In spite of this little attention,
the study on developing countries commenced in the end of the 1970s
and early 1980s (Lall, 1983a; Wells, 1983). In the 1990s, renewed
attention has been given to the topic of MNC growth with the
effort of scholars and researchers in considering their studies on
multinationals from developing countries(Cantwell & Tolentino,
2000; Dunning, 1997; Hoesel, 1999; Nagesh, 1995; Tolentino,2000;
UNCTAD, 2006; Yeung, 1994). According to Dunning (1995) in his
eclectic paradigm theory, the main difference between MNCs from
developing countries and those from developed countries lies in the
nature of ownership-specific advantages of developing country
MNCs. Ownership advantages of MNCs from developing countries are
argued to lie in their lower production costs, lower wages and lower
prices, which can only be exploited in other developing countries with
a similar or poorer economic status (Lall, 1983b; Wells, 1983a).
Available evidence (e.g. Ahmad & Kitchen, 2007; Cantwell &
Tolentino, 2000; Hoesel, 1999;Tolentino, 1993; Yeung, 1998) has
emphasised that capabilities of developing countries MNCs to catch
up with their developed-countries counterparts through the process
of technology accumulation.
OBJECTIVES :To address the gap, the current study aims to examine
the impact of MNCs on developing countries. To achieve the
main objective, the study covers the following specific purposes: 1.
To identify the overall positive impact of MNCs on developing
countries.2. To explore the overall negative impact of MNCs on
developing countries.3. To put several case studies in order to show the
evidence of positive, negative, and mixed impact of MNCs on
developing countries.4. To suggest some recommendations for
developing countries to attract MNCs within their boundaries.
Advantages of Multinational Corporations in developing countries

Multinationals provide an inflow of capital into the developing country.
E.g. the investment to build the factory is counted as a capital flow on
the financial account of the balance of payments. This capital
investment helps the economy develop and increase its productive
capacity.
The Harrod-Domar model of growth suggests that this level of
investment is important for determining the level of economic growth.
One of the best ways to increase the level of economic growth is to
provide an inflow of capital from abroad.
The inflows of capital help to finance a current account deficit.
(Basically, this means that foreign investment enables developing
countries to buy imports.)
Multinational corporations provide employment. Although wages seem
very low by Western standards, people in developing countries often
see these new jobs as preferable to working as a subsistence farmer
with even lower income.
Even liberal economists like Paul Krugman and Jeffrey Sachs have
defended ‘sweatshop labour’ arguing that although employers are
paying too low wages. Often sweatshop labour is better than the
alternative of scavenging or no paid employment. Economies in south-
east Asia have seen rising wages in recent decades – showing that low
wage economies can develop.
Multinational firms may help improve infrastructure in the economy.
They may improve the skills of their workforce. Foreign investment may
stimulate spending in infrastructure such as roads and transport.
Multinational firms help to diversify the economy away from relying on
primary products and agriculture – which are often subject to volatile
prices and supply.
Disadvantages of Multinational Corporations in developing countries
Environmental costs. Multinational companies can outsource parts of
the production process to developing economies with weaker
environmental legislation. For example, there is a trade in rubbish,
which gets sent to developing economies like India for disposal and
recycling.
Profit repatriated. Although multinationals invest in developing
economies, the profit is repatriated to the location of the multinational,
so the net capital inflows are less than they seem.
Skilled labour. When undertaking new projects, the multinational may
have to employ skilled labour from other economies and not the
developing economy. This means best jobs are not received by local
workers and the investment is diffused.
Raw materials. A large component of multinational investment in
developing economies is seeking out raw materials – oil, diamonds,
rubber and precious metals. The extraction of raw materials can cause
environmental externalities – polluted rivers, loss of natural landscape.
Also, there is only a short-term inflow of money to pay for the
materials. In many cases, the payments have not effectively filtered
through to the wider population – with money syphoned off by corrupt
officials and politicians. Therefore, local communities in developing
economies can face widespread disruption, but only limited
compensation for the precious materials.
However, it is not all one way. Chinese companies have built new roads
and railways in Africa to gain better access to raw materials in Central
Africa. This infrastructure investment will leave a long-term legacy –
even if firms leave Africa.
Sweat-shop labour. Not all economists are convinced sweat-shop labour
is a good thing. Critics argue that weak labour conditions allow
multinationals to use their monopsony power and pay lower wages to
workers than they should get paid.

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LITERATURE REVIEW: Recent advances in information technology, coupled

Advantages of Multinational Corporations in developing countries

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