Sociology & Social Anthropology of Development

Assignment: Multinational Corporation

Khondokar Sabera Hamid,

Master in Development Studies,
Department of Economics,
United International University, Dhaka, Bangladesh

Multinational Corporation:

A Multinational Corporation (MNC) is any business that owns and controls production or service
facilities in two or more countries. Examples include Ford, Wal-Mart, CEMEX, Nokia, Sony,
etc.
A multinational corporation (MNC) or multinational enterprise (MNE) is a corporation that is
registered in more than one country or that has operations in more than one country. It is a large
corporation which both produces and sells goods or services in various countries. It can also be
referred to as an international corporation.
According to Franklin Root (1994), an MNC is a parent company that

Engages in foreign production through its affiliates located in several countries,

Exercises direct control over the policies of its affiliates,

Implements business strategies in production, marketing, finance and staffing that transcend
national boundaries.

According to N.H. Jacob, "A multinational corporation owns & manages its business in two or more
countries."
According to UNO, multinational companies means, "those enterprises which own or control production
or service facilities outside the country in which they are based."
Mr. Jacues Maisonrouge, President, IBM world trade corporation describes MNCs-

It operates in many countries at different levels of economic development.

Its local subsidiaries are managed by nationals.

It maintains complete industrial organization including R & D facilities in several countries.

It has a multinational central management.

It has multinational stock ownership.

The International Labor Organization (ILO) has defined an MNC as a corporation that has its
management headquarters in one country, known as the home country and operates in several other
countries, known as host countries.

To be an MNC the Company must:

Produce abroad and in the headquarters country

Operate in a certain minimum number of nations

Derive some minimum percentage of its income from foreign operations (e.g. 25%)

Have a certain minimum ratio of foreign to total number of employees

Directly control foreign investments

Terms such as International Corporation, transnational corporation and global corporation are often used
as synonyms.

Characteristics of MNC:

Multi-national or Trans-national companies are ones which locate their factories

throughout the world.

This gives them many benefits, such as access to the world market, cheap labour, cheaper
production costs, and therefore greater profits.

The headquarters of the company remains in its original country, usually one of the most
developed countries in the world, such as the UK or USA.

They then have factories throughout the world, which either makes parts or entire finished
products for the company to sell on the world market.

Most of the largest multi-national companies are oil companies such as BP and Exxon
(Esso), as well car companies (for example, Ford, Toyota, Nissan and Volkswagen).

Other well-known companies such as Coca-Cola, IBM and Sony are also defined as being
multi-national.

Multi-national companies locate around the world for their own benefit - in other words - to
make as much money as possible.

They bring with them both advantages and disadvantages for the country that plays host to
them.

History:
Multinational business operation is not a new concept. The British East India Company,
Hudsons bay corporation and Royal Africa companies are examples of MNCs.
The post Second World War period has however, witnessed a changing hand in colonialism and
there emerged a new trusts for industrial and technological development as well as rise of the
USA as the largest industrial power.
The first multinational corporation was the Dutch East India Company, founded March 20, 1602.
It was also arguably the worlds first mega corporation, processing like governmental powers,
including the ability to wage war, negotiate treaties, coin money and establish colonies. The first
modern multinational corporation is generally thought to be the East India Company.

Features of Multinational Company:

1. Big size,
2. Huge intellectual capital,
3. Operates in many countries,
4. Large number of customers,
5. Large number of competitors,
6. Structured way of decision making.

Multinational Corporate Structure:

Multinational corporate can be divided into three broad groups according to the configuration of
their production facilities:
1. Horizontally integrated multinational corporations,
2. Vertically integrated multinational corporations,
3. Diversified multinational corporations.

Objectives:
1. To expand the business beyond the boundaries of the home country.

2. Minimize cost of production.

3. Capture lucrative foreign market against international competitors.
4. Avail of competitive advantage internationally.
5. Achieve greater efficiency by producing in local market and then exporting the product.
6. Make best use of technological advantages by setting up production facilities abroad.
7. Establish an international corporate image.

Strategies:
Corporations may make a foreign direct investment. Foreign direct investment is direct investment into
one country by a company in production located in another country either by buying a company in the
country or by expanding operations of an existing business in the country.

A subsidiary or daughter company is a company that is completely or partly owned and wholly
controlled by another company that owns more than half of the subsidiary's stock.
A corporation may choose to locate in a special economic zone, which is a geographical region
that has economic and other laws that are more free-market-oriented than a country's typical or
national laws.

Reasons for the Growth of MNCs:

Factor
Mobility
Development in
Communication
Technology

Economic
Reform

Growth Urge

Risk Minimize
Market
Potential

Different Forms of Multinational Corporations:

Multinational Corporations operate in the following ways.
1. Franchising:
In this form, Multinational Corporation grants firms in foreign countries the right to use its trade
marks, patents, brand names etc. The firms get the right or license to operate their business as per
the terms and conditions of franchise agreement. They pay royalty or license fee to multinational
corporations. In case the firm holding franchise violates the terms and conditions of the
agreement, the license may be cancelled. This system is popular for products which enjoy good
demand in host countries.
2. Branches:
In this system Multinational Corporation opens branches in different countries. These branches
work under the direction and control of head office. The headquarters frames policies to be
followed by the branches. Every branch follows laws and regulations of the head office and host
countries. In this way multinational companies operate through branches.

3. Subsidiaries:
A multinational corporation may establish wholly owned subsidiaries m foreign countries. In
case of partly owned subsidiaries people in the host countries also own shares. The subsidiaries
in foreign countries follow the polices laid down by holding company (Parent company). A
multinational company can expand its business operations though subsidiaries all over the world.
4. Joint Venture:
In this system a multinational corporation establishes a company in foreign country in
partnership with local firms. The multinational and foreign firm shares the ownership and control
of the business. Generally, the multinational provides technology and managerial skill and the
day to day management is left to the local partner. For example, in Maruti Udyog the
Government of India and Suzuki of Japan have jointly supplied capital. Suzuki supplies
technology and the day to day management lies with the Government of India.
5. Turn Key Projects:
In this method, the multinational corporation undertakes a project in foreign country. The
multinational constructs and operates the industrial plant by itself. It provides training to the staff
in the operation of plant.
It may also guarantee the quality and quantity of production over a long period of time.

GLOBALIZATION:
Multinational corporations are important factors in the processes of globalization. National and
local governments often compete against one another to attract MNC facilities, with the
expectation of increased tax revenue, employment, and economic activity. To compete, political
powers push towards greater autonomy for corporations, or both. MNCs play an important role
in developing the economies of developing countries like investing in these countries provide
market to the MNC but provide employment, choice of multi goods etc.
On the other hand, economist Jagdish Bhagwati has argued that in countries with comparatively
low labor costs and weak environmental and social protection, multinationals actually bring
about a 'race to the top.' While multinationals will certainly see a low tax burden or low labor
costs as an element of comparative advantage, Bhagwati disputes the existence of evidence
suggesting that MNCs deliberately avail themselves of lax environmental regulation or poor
labor standards. As Bhagwati has pointed out, MNC profits are tied to operational efficiency,
which includes a high degree of standardization. Thus, MNCs are likely to adapt production
processes in many of their operations to conform to the standards of the most rigorous
jurisdiction in which they operate (this tends to be the USA, Japan, or the EU). As for labor

costs, while MNCs clearly pay workers in developing countries far below levels in countries
where labor productivity is high (and accordingly, will adopt more labor-intensive production
processes), they also tend to pay a premium over local labor rates of 10 to 100 percent. Finally,
depending on the nature of the MNC, investment in any country reflects a desire for a mediumto long-term return, as establishing plant, training workers, etc., can be costly. Once established
in a jurisdiction, therefore, MNCs are potentially vulnerable to arbitrary government intervention
such as expropriation, sudden contract renegotiation, the arbitrary withdrawal or compulsory
purchase of licenses, etc. Thus, both the negotiating power of MNCs and the 'race to the bottom'
critique may be overstated, while understating the benefits (besides tax revenue) of MNCs
becoming established in a jurisdiction.

Social Responsibilities of MNCs:

Some people argue that MNCs should have social responsibilities, because:

Firms activities occur within different cultural, social, and historical contexts.

Firms perform as a central hub of economic activities that links consumers, suppliers,
manufacturers, labor, managers, governments, and the natural environment.

Firms are governed by an invisible social contract.

Firms have no choice but to confront cultural, social, and ethical issues.

Corporations are social institutions. If they do not serve society, they have no business
existing.
Some people argue that MNCs should not be burdened with Social Responsibilities, because:

Firms only social responsibility is to pursue profit wherever possible.

The free enterprise has made wealth creation possible. So far, no other system has duplicated
this success.

If we make firms socially responsible, it would be bad for both business and poor
communities.

Social responsibilities reduce shareholder returns and distract business from what they can do
best.

Making firms socially responsible will have the opposite effect of what is intended, e.g.,
many companies are beginning to feel that it is better to pull their factories out of poor

countries rather than risk being seen operating below accepted standards or abusing foreign
labor.

Multinational Corporation Investment Decision Making

Advantages and Disadvantages of Multinational Corporations:

Multinational Corporations no doubt, carryout business with the ultimate object of profit making
like any other domestic company. According to ILO report "for some, the multinational
companies are an invaluable dynamic force and instrument for wider distribution of capital,
technology and employment; for others they are monsters which our present institutions, national
or international, cannot adequately control, a law to themselves with no reasonable concept, the
public interest or social policy can accept. MNC's directly and indirectly help both the home
country and the host country.

Advantages of MNC are for the host country:

MNC's help the host country in the following ways
1. The investment level, employment level, and income level of the host country increases due to
the operation of MNC's.

2. The industries of host country get latest technology from foreign countries through MNC's.
3. The host country's business also gets management expertise from MNC's.
4. The domestic traders and market intermediaries of the host country gets increased business
from the operation of MNC's.
5. MNC's break protectionalism, curb local monopolies, create competition among domestic
companies and thus enhance their competitiveness.
6. The host country can reduce imports and increase exports due to goods produced by MNC's in
the host country. This helps to improve balance of payment.
7. Level of industrial and economic development increases due to the growth of MNC's in the
host country.

Advantages of MNC are for the home country:

MNC's home country has the following advantages.
1. MNC's create opportunities for marketing the products produced in the home country
throughout the world.
2. They create employment opportunities to the people of home country both at home and
abroad.
3. It gives a boost to the industrial activities of home country.
4. MNC's help to maintain favorable balance of payment of the home country in the long run.
5. Home country can also get the benefit of foreign culture brought by MNC's.

Disadvantages of MNC are for the host country:

1. MNC's may transfer technology which has become outdated in the home country.
2. As MNC's do not operate within the national autonomy, they may pose a threat to the
economic and political sovereignty of host countries.
3. MNC's may kill the domestic industry by monopolizing the host country's market.

4. In order to make profit, MNC's may use natural resources of the home country
indiscriminately and cause depletion of the resources.
5. A large sums of money flows to foreign countries in terms of payments towards profits,
dividends and royalty.

Disadvantages of MNC are for the home country:

1. MNC's transfer the capital from the home country to various host countries causing
unfavorable balance of payment.
2. MNC's may not create employment opportunities to the people of home country if it adopts
geocentric approach.
3. As investments in foreign countries is more profitable, MNC's may neglect the home countries
industrial and economic development.

Multinational Corporation in Bangladesh:

In the age of capitalism the multinational companies are the part and parcel of the economy of a
country. A multinational company is a company which is originated in a country (home) and
expands its activities through the world.
The Indian Sub-continent has been an exquisite land of attraction for the businessmen since a
long been. Bangladesh, after achieving birth in 1971 had become a fascinating body by the
MNCs. As capitalization is going on through the world the MNCs are given an unwritten license
to expand their business over the world. In this sequel action American Life Insurance Company
launched in Bangladesh as a first ever MNC. Since then to today around 100 MNC have been
competing in Bangladesh.
If we consider the prior period of liberation war, we get launching of a lot of companies in
Bangladesh. Among them Standard Chartered Bank (BD), British American Tobacco (BAT)
Bangladesh are most renown. BAT came in East Pakistan (now Bangladesh) in 1945. Standard
Chartered Bank came in Bangladesh in 1948. Another business conglomerate Aventis (now
Sanofi Aventis) launched in Bangladesh in 1973. So coming of a lot of foreign companies in
Bangladesh still going on. Ours have a large population and low cost labor force as well. As a
result MNCs are enjoying a smooth pave to come in Bangladesh.

Importance of MNCs in Bangladesh:

Very large multinationals have budgets that exceed some national GDPs. Multinational
corporations can have a powerful influence in local economies as well as the world economy.
Multinational corporations play an important role in international relations and globalization. In
addition to efforts by multinational corporations to affect governments, there is much
government action intended to affect corporate behavior. The threat of nationalization (forcing a
company to sell its local assets to the government or to other local nationals) or changes in local
business laws and regulations can limit a multinational's power. At present in Bangladesh many
multinational corporations are operating their businesses. Among those some are banking and
financing, some are manufacturing and rests are consulting and others. These corporations are
public limited, where host countrys share are pre-defined. These companies are operating their
business either distribution or setting plant. They play an important role in globalization.
MNC involvement is crucial to poverty reduction for two reasons: First, the reduction of poverty
depends on the growth of business, especially small, domestic businesses. And increasingly for a
local business to flourish it must have access to the world: to markets, credit, and technology, all
facilitated by MNCs. The second reason is less obvious and more controversial: Poverty
reduction requires systemic change, and MNCs are the worlds most efficient and sustainable

engines of change. They provide political leverage with local governments; they offer
opportunity for people who are convinced there is none; they motivate the young to learn and
organize to gain power; they build roads and hospitals and other infrastructure. MNCs in
developing countries like Bangladesh are often the first choice for private sector jobs by young
people, who are attracted by the higher salaries and the learning opportunities. And wise
governments get the private sector to do as much spending on infrastructure as possible in order
to protect their own treasuries.
Arguments for Multinational Corporations in developing countries like Bangladesh:

They 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 inflows of capital help to finance a current account deficit. (foreign investment enables
developing countries to buy imports)
Multinational corporations provide employment. Although wages seem very low to us,
people in developing countries often see these new jobs as preferable to working as a
subsistence farmer with even lower income.
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.

Adverse effects of MNCs in Bangladesh:

Anti-corporate advocates criticize multinational corporations for entering countries that have low
human rights or environmental standards. They claim that multinationals give rise to huge
merged conglomerations that reduce competition and free enterprise, raise capital in host
countries but export the profits, exploit countries for their natural resources, limit workers'
wages, erode traditional cultures, and challenge national sovereignty.

1. Lack of access to natural resources:

Human rights from human centric perspective enshrine every ones access to natural
resources. Corporate globalization leads to unjust and undemocratic socio-economic order where
the poor and marginalized are losing power and at the same time are lacking access to natural
resources. People do not have decision making power over resources due to lack of enabling
environment. As a result, poverty situation is worsening. Corporate powers manipulate
globalization for their own profit. These powers own the maximum proportion of worlds
resources. Scenario is same in the context of Bangladesh.

Natural resources are the common resources where everyone should have equal access. Due
to the unequal social structure rich people usually control the resources and poor are deprived
off. Thus, poor is not poor by predetermined fate but they are poor because of lack of access to
natural resources.
The policies in regard to the natural resources are framed through bureaucratic process and
often follow the doctrines of colonial land policies that serve the benefit of the rich and powerful.
As the poor have no access, the policies rule over the poor and their access by default are
ignored.
Over exploitation of resources create climate hazard where people become the victims in the
hand of corporate. Natural resources should not be used for profit only. Resource justice is an
important aspect, which ensures rights and justice. Claiming rights over natural resources makes
poor enabled to earn their livelihoods.

2. Deforestation:
Deforestation continues at an alarming high rate. About 13 million hectares of primary
forests are lost or modified each year due to deforestation and other human activities. The forest
is not adequate according to the need of the country. Still many groups rely on this for
livelihoods. Large reserved forests are the reserve forests such as Sundarbans, Chittagong region,
and Madhupur tracts. And there are some protected forests across the country besides reserved
forests. Inhabitants of reserved forests do not have rights over forests products but the inhabitants
of protected forests have some rights. In the present context indigenous people and tribes who
are the inhabitants of some forests do not have scope to live in harmony with the forest.
Increasing commercial approach has been depleting natural forests and has introduced the
process of deforestation. Thus, the people have been cutting down their future potential to meet
the need and greed of the present.
Bangladesh is a cyclone prone country and the country has been encountering dangerous
cyclone for many decades. Scientists say that the frequency of cyclone will be higher because of
climate change. Sundarban acted as a shield to protect the devastating impact of Sidr in the
recent time. Therefore, deforestation not only come up with livelihood crisis but also increase
death toll at cyclones.

3. Injustice over Energy Resources in Bangladesh:

Multinational companies have exploited the gas, oil, and coal resources of the country. WB,
IMF, and their allies have patronized these multinational companies and local business elites to
exploit energy in the country. These agents along with local greedy business and political elite
have protected their own profit and interest.

4. Aggression of Multinational Companies for Agricultural Productivity:

The country needs more agricultural productivity to feed its increased population. There is
little scope to extend arable areas for cultivation. Thus, the challenge is to have increased
production from limited land. Multiple cropping and irrigation technique could be adapted in this
connection. Still it this leads to over exploitation of soil. Organization and institutional support
mechanism is not state of the art to keep maintaining traditional sustainable agricultural method.
Multinational corporations are very much active to sell their products such as chemical fertilizers
and GMOs with a false promise for higher production. Farmers are perplexed about how to
produce more crops within limited land. They believe prescribed commercial approaches for
higher agricultural produces.
Multinational companies are selling chemical fertilizers and pesticides in the rural market of
Bangladesh. These chemicals pollute both ground and surface water. Farmers do not practice
traditional organic techniques for cropping. Multinational corporations have washed brains of
farmers to promote their product and to make profit. Excessive usage of chemical has also
degraded bio-diversity and ecological balance.

5. Environmental Impact and the Living Condition of the People:

The environmental impact that these large corporations have is a big negative downside to the
people living in developing countries. The development of industries creates large amounts of
pollution that the local people are faced to deal with. The oil spills have traveled through the
waters, and many animals and people have died because of lack of clean water. Many people
have suffered from diseases because of the lack of clean water. The corporations only had to pay
a small price for the damages that their company caused. The people living in the area are forced
to suffer living with the damages to their ecosystem.

6. Child Labor:
Many people in developing countries like Bangladesh never get a chance to receive a proper
education because they are forced to go to work in these factories at an early age so that they
could use their wages to help support their family. In many countries the child labor laws are not
very strict. Corporations exploit these weak child labor policies. Child labor means that
companies can pay these younger employees even less than the bare minimum that they pay
adults. Corporations are also able to take advantage of the labor laws in other countries. They are
not forced to pay people overtime or give them vacation hours. These corporations dont offer
any medical benefits or paid for taking time off if a person gets hurt on the job and is unable to
work. In developing countries some people these factories provide living accommodations such

as dormitories, and the people have follow curfews and others rules enforced by the dean. Most
people are forced to work 10 hours a day and about 60 hours a week.

Recommendations:
1) Land should be reformed on the basis of proper distributive justice. Khas lands need to be
distributed among landless poor. Access to land should enshrined by policies.
2) Access to water bodies such as beel, haors, and baors should be guaranteed by the rural
poor. Right to safe drinking water has to be ensured for the citizens. Utilization of rain water
could be developed to stop overwhelming demand on ground water.
3) Conservation of forest is an immediate need by stopping deforestation. Government has to
activate the existing laws or to enact special laws for forest conservation. Plantation of
hazardous tress for forestation is a fools effort. Programs have to be undertaken to plant
eco-friendly tress forestation.
4) Government should necessary steps with regard to National Fisheries Policy (1998)
importance of conserving fish breeding grounds and habitats, especially in relation to water
management infrastructure such as flood control, irrigation and drainage projects.
5) Government should strictly prohibit overwhelming shrimp culture and to reduce WB
influence over shrimp production.
6) Government along with peoples participation should revisit policies regarding energy
resources such as oil, gas, and coal and stop intervention of foreign companies in this
regard. Government should also collect compensation money from foreign companies and
compensate habitants of the project areas.
7) Government should take immediate steps for the conservation of ecology and bio-diversity.
Environmental Conservation Act of February 1995 along with other policies that are
concern about ecology.
8) Government should identify the local and foreign actors who violate rights and livelihood of
the marginal people. In addition, government needs to ensure enabling atmosphere for
marginal people to access natural resources.
9) In order to allay the fears of host countries, MNCs need to:
a. Provide employment
b. Train managers
c. Provide products and services that raise standard of living

d. Introduce and develop new technical and managerial skills

e. Increase productivity
f. Mobilize capital for productive purposes from less productive uses.

Conclusion:
Multinational companies do bring some benefits to developing countries. They provide jobs and
increase the wealth of the local people. The country gains some wealth by way of taxes.
However, there are some problems as well. The jobs are often low-skilled and poorly paid. Much
of the profit will go out of the country, and the company may pull out to relocate in a country
where it can make a greater profit. Multinational companies are primarily interested in making
profits for their shareholders. Paying wages is an expense that the company will try to reduce to
as low a level as possible.

References:
From different books and publications related to multinational Corporation...pictures are
taken from different websites..