The Role of Multinational Enterprises in the Globalized Economy

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Multinational corporations (MNC) played a major role in the global economy, they are considered as generator since they channel physical and economic capital comprise in investment.  In this case, why did Multinational Corporations invest in another country?  I s it true that Multinational Corporations exploiting other countries agricultural land, abundant natural resources and skillful laborers?  Did the government of other country encourage Multinational Corporations to invest in their country?  These are the questions facing by the Multinational Corporations, based on the reality of the situations happened in any parts of the world.  Activism and demonstrations against Multinational Corporations perform by different concerned groups and individual.  Media plays a vital role in informing the public which promotes awareness among individuals around the world.

According to the scholars, we should understand first what Multinational Corporations are before understanding their existence.  Multinational Corporation is a private institution devised to organize, through employment contracts, interdependencies between individuals located in more than one country (Hennart 127).  Studies emerged to explain existence of MNC failed, for the reason that appropriateness of theories used for understanding was unsuccessful.  Theories of Multinational Enterprise consists of (1) Trade theories; (2) Industrial organization theories; (3) Transaction cost or Internalization theories.  On theories aforementioned, the Transaction cost/Internalization theories somehow applied on the issue of existence concerning MNC.

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These large corporations arise because of employment contracts interdependencies between agents in different countries.  There are two types of externalities arise, the first one is competition in the market for finished products and second is occurrence of market imperfections (Hennart 136).  MNC invests in different countries, establishing hierarchy through agents which provides employment contracts for them in particular country, opportunities for acquiring laborers to process materials and produce finish products to distribute them globally; this process creates interdependence organized through the presence of Multinational Corporations.  It seems that the general function of MNC is to balance the global economy, as an effect of globalization which many countries engage on.  Multinational possess hard-to-replicate proprietary advantage like brand label and technology which local economy does not possess, technology serves as a Multinationals’ powerful tool to invade investments and local and global economy.  As a consequence of the said invasion, domestic investments produce by natives will be greatly affected, thus the local economy will depends on imports and products provided by multinationals.  However, multinational corporations sell licenses to its own subsidiaries overseas or to joint ventures, thereby establishing property rights that can prevent the distribution of technology to business competitors or former associates (Industrial Firm Location 3).

A multinational manufacturer hesitates before closing a factory and moving production elsewhere.  After all, currency rates, and other costs, might become favorable again. Multinational Corporations invest physical capital such as factories and different industrial facilities and infrastructures despite the fact that actions are risky because business environment is unknown to them.  Reasons for taking risks include forces that are attractive to the multinationals like free-trade policies and reduction of tariffs given by countries, otherwise if this will not happen, the company will rely only on exports and global market is impossible and hard to reach (Industrial Firm Location 2).  The effects of emergence of technology changed the business sector, financial sector, society or even the life of an ordinary person since today all people are technologically inclined.  Companies now can introduce their products easily by availing services of media through television or radio advertisements as well as sponsoring sports and celebrities.  Corporations used this technology for advertisements and production to make the job easy and inexpensive.

Multinational Corporations are major companies which have been the long time producers of consumer products and support industries in one country (Industrial Firm Location the Role of Multinational Corporations).  Government sells companies to multinationals through privatization, this cause penetration of multinationals in one country, examples of Multinational Corporations are Colgate-Palmolive, Unilever, McDonalds and Procter and Gamble who produce bathroom or detergent soaps, variety of toothpastes, food products operated in different parts of the world.  As a consequence of these foreign investments, there will be degradation of local companies owned by natives; these investments in return provide employment for the natives and income for the developing countries’ economies.  In fact, most of the countries make policies like free-trade policy to attract foreign investors; it looks like they are begging to multinationals for money. Even though they know that these policies are prone to oppression, countries still engage into such investments deals.

Multinationals are taking advantage of these overwhelming offers through undervaluing the labor and abusing the environment which is due to lack of pollution taxes.  Labor oppression and exploitation have been long time issues in these developing countries but why is it that their government do not address or give solutions to these labor issues happening in their own territory?  Simply because the government is afraid that multinationals will pull out their resources and investments in their country, if this happens, the economy and employment sector will suffer.  The standards of living will be low that even basic needs like food, clothing, and shelter will not be that affordable and thus general poverty will take place.  The people will blame the government if these consequences happen and I am sure that government will not allow these to happen that is why multinationals are continuously operating in these third world or underdeveloped countries.  Asian governments do not have any choice but to maintain multinationals that will serve as the big players in their local economy, they don’t have enough technology, machineries and money for local production even though there is abundant raw materials and labor.  These are the effects of capitalism that usually occur in a democratic country.

For instance in the case of the Philippines, the country embraced democratic ideals for more than one hundred years, Philippines have overly generous free trade policies as well as other Asian countries to attract foreign investors.  The country’s major source of income is agriculture and fishery which make them one of the major exporters of raw materials and foods i.e. rice, mango, corn.  The country has rich natural resources and beautiful places known around the world. Philippine resources are widely exploited by multinational corporations, hectares of land in provinces or even places where indigenous people lives are converted into industrial infrastructures owned by multinational corporations.  The natives of those places become the laborers and workers of the company and they are exploited for they are paid under the minimum wage which actually violates the Philippine labor code.  Multinationals claimed that the wage issue is true and they do that for they see these native workers lack knowledge and sufficient skills for them to render good service for the company.  The Philippine government did not protect the native workers’ right to receive fair payment but rather they conducted seminars or vocational studies to teach the natives how to work and develop into skillful workers for the sake of the multinational companies operating on the place.

That is how capitalism affects the goal of education in the Philippines; it directs on employment and not for the sake of becoming a quality person that will eventually be the future of their own country.  The Philippine government encourages people to go abroad despite the consequences of getting low profile jobs like domestic helpers and construction workers. They were claiming that Filipinos who work abroad are the new heroes of the country for they bring extra income that will offset the shortage in national income.  There are international organizations like United Nations which promotes welfare protection of the people by preserving human rights, education and many more.  It is an organization joined by different countries; highly developed, developed, developing or underdeveloped countries but it seems that the organization is useless because situations like inequality and oppression are still happening to different poor countries.

. Various labor and human rights activists performed rallies and demonstrations to express their opinions and sentiments against activities of multinational corporations.  Through newspapers and television shows the by then labor situation in Asia was exposed, these violations were not only committed in United States but also in Asian and African countries like Burma (Myanmar), Indonesia, China, Vietnam, Nigeria, Bangladesh and Philippines.


“Industrial Firm Location: The Role of Multinational Corporations.” Gardner’s World Economics. <http://>

Hennart, Jean-Francois. “Theories of Multinational Enterprise.” Oxford University Press. <http://>

“The OECD Guidelines for Multinational Enterprises.” Ministry of Investment: Egyptian Investment Portal <http://>

“Bad Mood Rising.” No logo: Taking Aim at the Brand Bullies. First Edition. January 2000. Knopf Canada. First ed. 2000

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The Role of Multinational Enterprises in the Globalized Economy. (2017, Jan 10). Retrieved from

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