The Multinational Enterprise has become ubiquitous in the new neo-liberal world order of the early twenty first century. However, all too often, these enterprises’ activities have lacked prudence and foresight in terms of the consequences for the local populations. Moreover, the loopholes of international business law allow these companies to go scot-free and evade accountability toward the citizens of the countries in which they operate on. The activities of Multinational Enterprises in developing countries can either be beneficial or disadvantageous to the country. Recent evidence suggests that there are more cases of the latte than the former. This essay tries to find out how far true the criticisms directed at multinational enterprises (MNEs) as a result of their activities in lesser developed parts of the world. This is done by citing examples from particular developing nations.
The primary criticism leveled against MNEs is their lack of responsibility toward the local and broader communities in which they operate. While they can accurately evaluate the values of tangible assets, more often than not the measure of intangible consequences of the company’s operations are not accounted. For example, let us take a company that out-sources manufacturing of cosmetics to a developing country. Countries such as Taiwan,Thailand,Singapore,Bolivia,Venezuela and Chileare typical examples. In a typical scenario, the manufacturing and packaging of the company’s products involves chemical processes, the residues of which are purged into a nearby river stream or sea. The discharged residual matter is highly toxic and hence harmful for the aquatic life in the waters. This leads to the diminishing in numbers of many species. Those that survive this hazard and land in fishing nets are consumed by human beings (Rodriguez, et. al., 2006). So, now the citizenry of the area surrounding the company’s processing unit get affected. The affectation could be of varying degrees and can manifest slowly over a long period of time. These are all costs alright, but not for the concerned MNE. These “externalities” are not accounted for by them (Verbeke, et. al, 2007). For example, emerging economies such asIndiaandChina, alongside middle or low-income economies with growth potential have attracted foreign institutional investors. These economies “typically have less sophisticated market supporting institutions and fewer locational advantages based on created assets, such as infrastructure and human capital. Therefore both policymakers and managers are interested in knowing how MNEs may contribute to the economic development of these economies. However, these circumstances change with the evolution of the global economy, and thus require a continuous reassessment” (Doukas, 2006).
Findings of several research studies conducted in the last few decades present a rather bleak picture of MNE activity in the developing world. In countries that have transitioned form centrally planned economies to free market economies in the last thirty years (thereby encouraging MNE entry), the overall effect on the large majority of the local population is very discouraging. When the United Nations designed Human Development Index (HDI) parameters were measured for these countries, the results were quite dismal. For example,
“Major HDI studies by Aitken and Harrison (1999) on Venezuela 1976-89, and Kathuria (2000) on India 1975-89 show negative results. Other studies such as Haddad and Harrison (1993) on Morocco 1985-89 and Kugler (2001) on Columbia 1974-98 find insignificant effects. For transition economies, the evidence is less clear. Liu (2002) in China and Sinani and Meyer (2004) in Estonia find positive effects, whereas other studies find negative effects in Bulgaria,Romania (Konings, 2001) and the Czech Republic (Djankov and Hoekman, 2000). Hence the overall evidence does not support the proposition of positive human development scores for the local population”. (Rodriguez, 2006)
MNEs are also criticized for exploiting the cheap labour offered by host nations. A highly publicized recent case is the operations of sportswear maker Nike in countries such a Indonesia and Philippines. Documentary filmmakers have recorded the inhuman working conditions offered to laborers in Nike plants in these countries. Moreover, these workers were never offered medical insurance or prescribed minimum wages. As a consequence of this negative publicity, many consumers in the West have refused to consume products that were manufactured through exploitation of labour in developing nations. While the condition in manufacturing hubs of Taiwan, Thailand and Chinaare not as harsh as in Indonesia and Philippines, they only barely adhere to international human rights standards (Baram, 2004).
MNEs have also tacitly aided corruption in the countries they operate in. For example, in Southeast Asian nations of Indonesia,Thailand; Asian nations of Bangladesh, India and Pakistan, and several East European countries such as Belarus,Georgia, Croatia and to a lesser extent in China, the levels of corruption have increased since the opening up of their economies. In other words, “as foreign firms entered and new firms were born within developing and transition economies, scholars and social commentators grew more aware of the magnitude of corruption and the need to understand and address it. Research on corruption over the past decade poses some fundamental questions and highlights the importance of many more. In the context of the MNE, corruption is the misuse of public power for private gain” (Verbeke, 2007).
Multinational Enterprises are also rightly criticized for their “contribution to global warming”, “contribution to the erosion of ozone layer”, “depleting fertile soils by industrial production policies”, “contribution to air and noise pollution”, etc (Stackhouse, 2007). Many sub-Saharan African nations such asZimbabwe,KenyaandMozambiquehave all been subject to these blatant injustices. In the more prosperous nation ofSouth Africa, the exploitation is not so much through external forces as through the institutionalized slavery of apartheid, until it was dismantled a decade ago. The economic structures of many developing countries are not designed to make business corporations pay for the damages induced by them. While those contributing capital are not affected in a major way as a result of this degradation to the environment, the dependent wildlife and the unsuspecting general population bear the brunt of the consequences. This blatant unfairness on part of MNEs has gained better awareness over the last decade or so – mainly through the persistent efforts of activists and intellectuals. The efforts of devoted activists are finally having an impact on the regulatory and legislative branches of governments to improve existing standards of accountability (Jere-Malanda, 2007).
In the context of MNE operations in developing countries, the issues of national sovereignty and commercial opportunity are intertwined. In other words, while large Internet portals such as Yahoo and Google, by way of exploiting global opportunities provided by the medium of the Internet have submitted to the imperatives of business. While their profits have shot up as a result of the new opportunities for advertisement, their tacit support of citizen censorship (as typified by the case ofChina) has attracted criticism. As a result of facilitating Chinese government censorship, these dotcom MNEs have done social injustice to the people ofTibet. Similar instances of thwarting democratic participation can be found in countries such as East Timor, Cambodia and the Indian subcontinent. In essence, MNEs such as Yahoo and Google don’t seem to care an iota about freedom of speech and democracy in the countries in which they function, as long as their revenues remain impressive. Such profiteering attitude is ethically very shallow and does not project globalization and MNEs in good light (Buckley & Ghauri, 2004).
In conclusion, it is quite clear that much of the criticism directed at MNE operations in developing countries is justified. The objections related to MNE operations are part of a broader critique of contemporary industrial societies. These criticisms include deceptive mass advertisements, over-population, environment damage, toxic dumping, corporate greed, etc. The MNEs, which are essentially headquartered in Western democracies, can virtually dictate terms of trade for the rest of the world due to their military and economic superiority. And being the torch bearers of unfettered laissez faire capitalism, the powerful business interests often dictate local government policies. This heady mix of wealth and power has so far led to outcomes that have harmed communities at large and the environment in which they live. The poor people in developing nations are especially badly hit by this phenomenon (Steinbock, 2007). While the rich are getting richer than ever before, the real incomes of the poor have stagnated or declined in most countries across the world. In this way the poor are disadvantaged twice, as the consumerist society keeps promoting ‘affluenza’. Hence, overall, there have been more negative consequences than positive consequences due to MNE operations in the developing world (Steinbock, 2007).
References:
Baram, M. S. (2004). Multinational Corporations, Private Codes and Technology Transfer for Sustainable Development. Environmental Law, 24(1), 33-65.
Buckley, P. J., & Ghauri, P. N. (2004). Globalisation, Economic Geography and the Strategy of Multinational Enterprises. Journal of International Business Studies, 35(2), 81+.
Dawson, L. M. (2005). Marketing to Less Developed Countries. 13+.
Doukas, J. A., & Kan, O. B. (2006). Does Global Diversification Destroy Firm Value?. Journal of International Business Studies, 37(3), 352+.
Jere-Malanda, R. (2007, November). Profiting from Poverty: . How Western Companies and Consultants Exploit Africa. New African 10+.
Luo, Y. (2001). Toward a Cooperative View of MNC-Host Government Relations: Building Blocks and Performance Implications. Journal of International Business Studies, 32(3), 401.
Meyer, K. E. (2004). Perspectives on Multinational Enterprises in Emerging Economies. Journal of International Business Studies, 35(4), 259+.
Rodriguez, P., Siegel, D. S., Hillman, A., & Eden, L. (2006). Three Lenses on the Multinational Enterprise: Politics, Corruption, and Corporate Social Responsibility. Journal of International Business Studies, 37(6), 733+.
Steinbock, D. (2007, January/February). New Innovation Challengers the Rise of China and India. The National Interest 67+.
Verbeke, A., Chrisman, J. J., & Yuan, W. (2007). A Note on Strategic Renewal and Corporate Venturing in the Subsidiaries of Multinational Enterprises. Entrepreneurship: Theory and Practice, 31(4), 585+.