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Multinational Corporations Responsibilities Toward the Third World Countries

Essay by   •  June 18, 2013  •  Research Paper  •  1,903 Words (8 Pages)  •  1,561 Views

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Multinational Corporations Responsibilities Toward the Third World Countries

For many years, Multinational Corporations (MNCs) have been investing on Third World Countries. This has brought up countless controversy cases over the treatment of the MNCs to the host countries and vice versa. Independently of the rightness or wrongness of the impact of MNCs on Third World Countries, it cannot be denied that this impact has been tremendous. From the beginning of MNCs with British East India Company (Chanda), passing through the 1970s, when there were around 7,000 of this MNCs, to nowadays, with more than 70,000 MNCs worldwide (Steger) there has been an evolution and a change of power in this relationship.

Dr. Tarzi, professor of international economics at Bradley University, gives a very good explanation on this switch of powers summarized in the next paragraph. Years ago, the host country had little power. In the first decades right after World War II, some MNCs were so powerful that they could prevent any threat from local governments towards their profits. The MNCs held a unique position that gave them special negotiation advantages: they held the sole source of capital, technology, and managerial expertise for the poor Third World States. The economic costs for the host countries to remove or replace MNCs were too high. Several factors helped to balance the power. First, the level of expertise of local governments has increased. Some host governments have developed levels of economics and financial skills that have helped them to negotiate in better terms with MNCs. Since the 1960s local government have made sure that the investments of MNCs will look toward the long term economic goals of these countries. The second factor is the increase in competition between MNCs. As expressed above, the number of MNCs currently operating is considerably higher than it was 40 years ago. This has given the host countries the freedom of choice, which at the end benefits the host country and creates better deals. Not only do the host countries get better deals, but they are also not so dependent as they used to be on a specific MNC. Now if any MNC tries to take advantage of its position over the country, the host government can choose a new partner. Another factor that has changed the bargaining power of host countries is the decrease on economic uncertainty. At the beginning, the corporation has more negotiation power because of the uncertainty of getting into a new market or making a new deal. But once its product or service is successful, the uncertainty is almost completely eliminated and all that remains are the fixed assets of the MNC on the host country. At that point, the corporation has much more at stake, balancing the negotiating capacity of the two sides. Nevertheless, there are still many things, which are not fair for either side, and the power between both sides will most probably never be completely balanced (Tarzi).

The thing that we must understand about the relation between the MNCs and the Third World Countries is that it has been vital for the development of Third World countries, especially the developing countries such as India or Brazil. As A. T. Knoppers, former senior vice president of prestigious pharmaceutical company Merck & Co, once said: "Relations between multinational corporations and developing countries too often assume the character of an adversary proceeding. In reality, the gain of one does not depend on the loss of the other. Both can win- both can lose." Through this paper I will argue what I believe the appropriate role of MNCs should be in Third World and developing countries.

The first thing that needs to be understood is that MNCs are not the only ones who have been benefiting from these investments. The amount of wealth generated on the host countries due to MNCs is very hard to calculate and very high. Through the renting of facilities, hiring locals, consuming raw materials from local companies, and other means the MNCs are investing in these countries as a whole. MNCs will usually give salaries slightly above the average of the country. This action generates wealth, because the workers of the MNCs will then spend this money. It is the same with people who sell them the buildings and installations; all these people will spend the money they earn thus generating more wealth and improving a whole economy. The people who work for MNCs gain in economic terms, as well as from the opportunity to get better job. The workers also learn new things and get trained to do a particular job. Since they are now trained to do a job, they gain from this experience and even if the company fires them, they have some built in knowledge that can be very useful. The MNCs also create some competition for both local companies, and government subsidiaries, creating an increase of wealth that would not be happening otherwise. It can be argued that these situations make it very discouraging for small businesses to keep on going, since they cannot keep up with the prices and they end up disappearing. But that argument is only looking in the short term. In the long term, due to increase in wealth from a part of the population, new needs come. For example, because of higher income, life conditions get better and more children are able to pass through the first years of their existence. Suddenly a whole new market of opportunities is opened for those who try to satisfy the needs of this new generation.

On the other hand, MNCs also benefit from the investments in developing countries. Of course they do not get into developing and third world countries for humanitarian reasons. They get outstanding service for an incredible

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