Multi national corporations

Table of Content

According to Zaidi (2011) MNCs have contributed significantly to the development of world economy at large. They have also served as an engine of growth in many host countries MNCs is based on the maxim: the bigger the better. Their huge size and immense resources confer them with the ability to take world markets by storm. Not only that, their tremendous economic power places them in a position of supremacy whereby they can command political institutions and shape cultures. The conquest by MNCs has evoked a great deal of controversy. Opinions are divided on whether the conquest is beneficial for the vast majority of the world’s population living in the less developed countries (LDCs). Whether it has ushered in an era of prosperity for the world at large, or whether it has simply marked the opening of another era of colonialism for the Third World (Zaidi, 2011). One of the most important issues states face is the growing power of the MNCs at the expense of state sovereignty. MNCs are more bane than a boon to state economies, recent evidence shows that foreign direct investment from MNCs can help promote and sustain development in many countries. Hence states have become reliant on MNCs to integrate their economy into the global economy and to encourage development. This reliance explains in large part why MNCs have gained so much power over states (Kapfer, 2006). The aim of this paper is to validate the notion that MNCs are increasingly influencing the nature and conduct of state behavior. The writer will be guided by two objectives namely: to explain the nature of MNCs, to relate the nature of MNCs to state. The central argument of this paper is that MNCs – State relations vary significantly across issue areas in their interaction and outcomes. The nature of Multinational corporations

There is no agreed definition of Multinational Corporation; however different scholars have come with up different definitions. Multinational corporations according to Christos & Sudgen (2000) are a corporation that is registered in more than one country or that has operations in more than one country. While according to Root (1990) Multinational Corporation is seen as a parent company that controls a large cluster of corporations of various nationalities. These corporations have their nature and features. This section therefore will focus on the nature of MNCs. Multinational corporations can be viewed either as independent actors operating in the interstices of state-to-state relations or as an instrument of foreign policy of states within which the parent companies are located. Their sensitivity to global activities makes them adaptive to new policy environments (Walters, 1972). For example Before the 1980s, environmental regulation in India was almost non-existent. In pursuit of economic development, the Government of India kept environmental regulation of multinational corporations to a minimum in order to attract foreign direct
investment, hence through this the MNCs take advantage to control state behavior (Bhan, 2010). According to Kogut & Kulatilaka (1994) MNCs capitalize on uncertainties such as volatile exchange rates, take advantage of time dependence by investing in two plants in different geographical localities and create manageneral practices, this means that MNCs invest where they can maximize profits. For instance the Chinese MNCs have had competitive political advantage, which is guided by their foreign policy which states non-interference in domestic affairs, making China to invest in Pariah state and take advantage of influencing the states conduct, i.e. Sudan (Alden & Davies, 2006). The nature of MNC is that their ability to operate within global strategies to take advantage of changing state policies, also means that investment can be very unpredictable, that is MNCs may quickly do an about face, pulling out investment in one state and investing in another (Stopford, 1999). For example during the civil wars in Africa, some multinational corporations that have not been dealing with fire arms and other weapons that can be used for wars stay while others that deal with things like oil extraction and mining can withdraw, for instance in Chad during the war in the 1960’s and 1995, MNCs dealing with oil extraction withdrew because of the war environment which made investment impossible (Darman, 2003). MNCs have a tendency to frustrate state economic planning, threatening states ability to effectively pursue national economic and political goals through such standard devices as fiscal policy, monetary policy, investment controls among others (Walters, 1972). ). For example MNCs in DRC have not played any positive role to help change the situation in DRC yet they as so many companies, instead most of them fund the rebels to ensure that conflict stays on and this frustrates the state economic planning and also threatens states ability to pursue national economic and political goals (Benette, 2002). The following section therefore focuses on the relationship between the nature of MNCs and state behavior.

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The relationship between the nature of MNCs and State behavior
Bluntschil notes that; the state is a combination or association of men in the form of Government and governed, on a definite territory, united together into a moral organized masculine personality, more shortly person of definite territory.sMNCs have been able to exert great power thereby
affecting the sovereignty of the state through a variety of means. For instance, the ability of MNCs to generate employment, improve the productivity of a state through greater inflow of investment, enable transfer of technology and help the overall health of a state has had a large effect on states and their ability to exercise supreme political authority. For example, in 2002, about 64,000 MNCs with a Foreign Direct Investment stock of $7 trillion, controlling one-thirds of global trade in goods and services had generated 53 million jobs. This speaks to one influence that an MNC is able to create in a particular state (Raji, 2010). MNCs are uniquely equipped by the global strategies, management practices and organizations to take advantage of opportunities created by differences in state’s policies, such as different labour costs, labour laws, environmental laws, business laws and taxes (Perlmutter, 1972). For example when faced with unfavorable conditions in a host country, MNCs can threaten to shift production and future investment plans to other states, which forces states to create favorable investment policies. For instance Kenya was recently faced with the threat of withdrawal of three mobile service providers namely Safaricom, Airtel and Orange companies, which forced the President to apologize and ordered the government not to interfere with the running of these companies. Paradoxically, both the extreme right and extreme left are united in their belief that MNCs, with an evil intent, are infringing on national sovereignty. They view MNCs to be amoral government-manipulating rent-seeking monoliths that exploit the lack of environmental regulations and cheap foreign labor in developing countries (Buchanan, 1995). For example EPZ companies have taken advantage of countries without labour laws to manipulate cheap labour, yet the host governments cannot do anything about it. According to Quinlivan (2001) Profits are very important to MNCs, but their investment decisions are heavily deterred by the presence of economic and political corruption. A UN survey of MNCs revealed that the number one reason MNCs do not invest in given countries is the presence of extortion and bribery, and not surprisingly, the main source of the corruption is government officials. Both the International Chamber of Commerce and the International Organization of Employers have established social codes and standards agreed upon by their members that attempt to discourage bribes and extortion and to
establish principles for responsible environmental management. According to Patey (2006) MNCs have been linked to civil war through the extraction of natural resources such as oil, natural gas, timber, diamond among others. These MNCs have played a key role in war ton societies by influencing the conduct of states in several ways. For instance oil corporations in Sudan have long been connected to the recently ended North –South civil war between the government of Sudan (GOS) and the Sudanese People Liberation Army (SPLA). This was in an effort to control the natural resources by the MNCs. This kind of scenario is also similar in DRC Congo and other African countries with rich natural resources. Moran (2006) notes that MNCs pervert or subverts host countries political process by using influence of their home countries to bring pressure to keep the host government in line. This is true for many MNCs in Africa especially the countries that have experienced conflict and are vulnerable. Such countries as Sudan, DRC Congo, and Chad among other have experienced pressure from the home countries of the MNCs. A case in point is DRC Congo which has had new partners from South Africa and China who have their own interest hence use the home countries to put pressure on DRC Congo state so as to achieve their economic interests. MNCs can pursue non – market Political activities that help them achieve their goals of efficiency. Government decisions then are a factor in MNCs investment and production because they determine the profitability of an investment. MNCs therefore are forced to integrate political know-how into their strategies (Brewer, 1992). In order to achieve maximum efficiency, the MNCs persuade the host government to favor its investment. This persuasion can take the form of negotiation, lobbying or even outright bribes, which are concealed in order to legitimize MNCs investment in a state (Kefpar, 2006). MNCs can also target social groups in order to eliminate any opposition to investment; hence political means must be chosen because they are superior to traditional economic ones. They use special groups because they are often important elements in the legislative process (Mallaby, 2004). Benett (2002) points that, MNCs have influenced the conduct of states in conflict occurring regions through promoting peace and avoiding conflict. These MNCs use leveraging skills and impact to promote stability in their areas of operations, not only because it is the right thing to do but also because it makes good business sense. They do this through conflict
prevention, Crisis management, post conflict reconstruction and peace building. For instance SC Johnson and Starback in agricultural sector in Rwanda provided linkages between communities that were warring against each other and this led to reconciliation and peace (Davis, 2010).


Multinational corporations have played a key role in economic status of most states. They have played a key role in creating employment, bring foreign direct investment in these states and have also been active in corporate social responsibility. These MNCs because of the advantage they have over states, they have influenced state behavior in both positive and negative ways. Despite the existence of non-state actors such as the MNCs, it is the state that is at the core in most parts of the world. The centrality of states continue in determining, for instance, the kind of economic policies to be adopted and the kind of economic interaction that they want to have with the rest of the world. It is therefore true that MNCs have influenced the nature and character of states in both positive and negative ways and this is in line with the liberal perspective in International Relations.

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