Examine the Impact of Multinational Corporations Setting up in Developing Countries

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Examine the Impact of
Multinational Corporations
Setting up in
Developing Countries

There has been a very controversial debate over years now about the impact of multinational corporations setting up in developing countries, which have many supporters as well as opponents. Surely there is not only one way to look at this more and more common phenomenon that affects the host countries in many both positive and negative ways that are discussed in this paper. The term multinational corporations (MNCs) is used “to identify firms that have extensive involvement in international business and engage in foreign direct investment (FDI). MNCs own and control value-adding activities in more than one country that are usually coordinated from central headquarters” (Griffin and Pustay, 2005). The investment of MNCs in the developing countries has greatly increased since the mid-1980s, because of globalization as they looked for new resources and larger markets (Greer and Singh, 2000). Presently, there are over 35,000 multinational corporations with more than 15,000 foreign subsidiaries, which is around one-third of the whole world production. Their value is estimated to be more than $1.5 trillion, one-third of which in the developing countries (GhanaWeb, 2012). The developing countries with most multinational investment are those with highest growth potential like Asian countries: China, Malaysia, Thailand, Singapore, and Latin American ones: Mexico, Argentina and Brazil. The African countries get less than 4% while the poorest 50 countries worldwide receive less than 2%. Over a half of business activities of MNCs deal with manufacturing and services and one-third with oil and gas (GhanaWeb, 2012). According to the report by the Institute for Policy Studies out of 100 largest world economies, based on corporate sales and country GDPs, 49 of those economies are countries while the other 51 are multinational corporations. Also, it is stated that the sales of the Top 200 corporations are equal to the 27.5 percent of world economic activity (Institute for Policy Studies, 2012). These numbers show how powerful MNCs are and how important they are to the world economy, but what is their impact on the developing countries? On the one hand, multinational corporations setting up in developing countries have a very positive effect on their host countries. First of all they provide direct employment to local people and transfer of skills through education and experience. They also affect the indirect employment through paying rent for land or buildings and cooperating with local suppliers, who now have more demand and must deliver higher quality products. As residents have more chances for income they can purchase more and improve their standards of living, while there is generally greater selection and availability of goods and services. The standard of living of local people in some developing countries like Bermuda, the Bahamas, South Korea, Singapore, Hong Kong, and Taiwan has improved largely after the investment of multinational corporations there (Action Institute, 2012). In addition, attracting foreign investment in the developing countries results in economic growth and higher national income. Such countries are usually better off with higher development rates, higher exports, lower imports and additional tax revenues coming from the multinational corporations. For instance, when Toyota started working in Georgetown, Kentucky it paid $1.5mln in property taxes, which was around one-fourth of the town’s municipal budget. By attracting foreign direct investment developing countries will also make substantial tax revenues that can be later on spent on health care, education and other domestic needs (Griffin and Pustay, 2005). In order to attract foreign direct investment local governments many times compete with each other to offer better conditions to multinational investors and lower the income taxes for their...
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