MULTINATIONAL CORPORATIONS IN AN INCREASINGLY GLOBALIZED WORLD

How Self-Regulated Chinese Businesses May Point the Way Forward
By Dipan Patel

According to Stiglitz, the phenomenon of globalization broadly describes changes in the realms of “the international flow of ideas and knowledge, the sharing of cultures, global civil society, and the global environmental movement” (Stiglitz 4). Perhaps beginning before European explorers set sail across the world in a fervor to discover and colonize the unknown expanses of the world that was around them, the effects of increasing interaction between cultures and the perpetual improvements in communication and transportation technology have affected every facet of the known world. As historical evidence points out, there have been actors that have greatly benefited from these affects and others who have been not nearly as fortunate. As the dimensions of globalization are nearly as extensive as the mind can imagine, the focus of this short analysis will be on one particularly powerful set of entities that have and still do profoundly affect the quality of life of those on this planet: multinational corporations (MNCs).

One does not need to possess special insight to realize the sheer importance of MNCs to every human on this planet. Any newscast worth its airtime will dedicate a segment to covering the day’s events that bolstered, shuddered, or somehow changed the outlook for many of the world’s MNCs that sell over $11 trillion in goods and services each year. That same newscast might well show that all too familiar image of protesters marching behind their anti-MNC banners and slogans, often at the world’s most important economic conferences. Critics of multinational corporations present a variety of charges against the operations of MNCs. From the poorest of the dalit class in India to the wealthy urban activist in the United States, the accusations that seem to reverberate most are that MNCs “violate labor rights, ruin the environment, prop up corrupt and repressive regimes, and undermine global cultural diversity” (Santoro 94). As there is a wealth of data that can sustain claims that fall under the four aforementioned broad types of MNC caused problems, one must ask if there is anything that MNCs are doing to counter the charges brought against them and what potential policy changes can be enacted to improve the competitive environment for MNCs while keeping them in check.

MNCs are lauded by advocates of international economic integration as providers of critical resources that would be otherwise unattainable to developing world. To argue that MNCs have not brought “much needed capital, jobs, and technology” (94) to LDCs is to be in utter denial of the monumental economic changes that have taken place in Latin American, China, and India over the past fifty years. Critics argue that one of the burdens that developing nations have to bear with the delivery and usage of these resources is pollution. However, a closer look into the issue may reveal the contrary. Though China has relatively poor environmental protection policies, the nation has not become an international landfill at the courtesy of MNCs. In a study carried out by Christmann and Taylor, which surveyed 118 Chinese businesses that were either entirely locally owned, MNCs, or jointly owned, the researchers discovered that instead of taking advantage of weak regulations, MNCs often “self-regulated” (94). Their study also asserts that MNCs and their suppliers “were more likely than local firms to comply with local regulations and adopt internationally recognized environmental management standards such as ISO 14000” (94). Though self-regulation is helpful, it can only take place after companies have already established themselves abroad.

The policies that affect the decisions MNCs make before planning foreign operations must be more thoroughly examined since these directly affect the international business framework within which MNCs operate. For example, Christmann and Taylor find that “the evidence is mixed regarding the extent to which MNCs consider local environmental laws when deciding where to locate manufacturing plants” (94). The lack of incentives for firms to carefully consider such laws in their planning process is a failure on the part of many actors. Environmental activists however, can direct “the glare of publicity” on MNCs that pursue environmentally harmful operations. Careful planning and cooperation with local, state, and/or national governments is a small price to pay when compared to the cost of “tarnishing their brand names or global reputations” (95). As one can imagine the skepticism with which developing nations receive MNCs, one must also consider what LDCs lose in their reluctance.

India’s pharmaceutical industry serves as an example of one such industry that could very much benefit from MNC involvement, though the relatively unappealing Indian business environment for pharmaceuticals may be keeping India from realizing potential gains. Faced with “ownership restriction, price controls, and weak intellectual property protection,” firms can easily take their production facilities elsewhere, but from the perspective of the Indian government, what potential gains are forgone when it does not limit the production of cheap generic versions of drugs that would otherwise be subject to protection by patents? Feinberg and Majumdar, through studies that examine the research and development activities of MNCs in developing nations, have found that technological spillover brought about by MNCs is highly likely to occur and highly beneficial to firms in developing nations (95). They also note that though spillover can occur in nations with strong intellectual property rights – through employees in the same industry speaking to each other and switching jobs – in India, spillovers are isolated to the MNC-to-MNC level rather than reaching local Indian firms. Thus, Feinberg and Majumdar believe that government policies may have decreased the very incentives that could entice firms to developing cutting edge technology in India (95). As India’s issue with pharmaceuticals illustrates a scenario that is “all to familiar” (95) in LDCs, one must consider what governments can do to help create a more MNC-conducive environment.

Stiglitz, in his Making Globalization Work, provides a number of strategies that could greatly benefit both LDCs and MNCs. Most of his suggestions focus on the creation of international operating standards that can keep MNCs in check and provide incentives for them to behave responsibly. In addition to generally pushing for greatly corporate social responsibility, Stiglitz suggests that an international competition authority that could enforce “global competition law” (Stiglitz 203) could greatly improve currently conditions, so as to emulate the multiple oversights present in the United States and EU. This way, nations could establish a clearer relationship with MNCs while having an authority to plead to when scrutiny or prosecution is necessary. In a related proposal, Stiglitz suggests making “it easier for compensation to be obtained when damage has been done” to avoid Union Carbide-like situations. As is evident, inter-governmental cooperation will be key factor that will determine how the relationship between LDCs and MNCs will form over the next several decades as emerging markets become increasingly important.

References


Photo courtesy of Robert Scoble

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3 responses to “MULTINATIONAL CORPORATIONS IN AN INCREASINGLY GLOBALIZED WORLD

  1. This is really a nice place to know what happened in the world nowadays, especially in the economic field. This is a good interactive platform also.

    In my opinion,as far as Mainland China is concerned, MNCs do far more good than harm. Firstly, the MNCs have trained lots of international Talents, which the local company demand heavily. Secondly, the MNCs introduce competition to Chinese market and make Chinese market reach maturity. Meanwhile, the MNCs give a boost to build supporting infrastructure in China.

  2. Dear Dipan,

    Good work. You make a correct point that MNCs provide benefits essential for the reduction of inequality and poverty. Furthermore LDCs that cannot attract FDI due to poor investment climates etc. do not stand a chance of “developing”.

    However, you go too far in insinuating that MNCs in some way self-regulate. If anything there is any lesson to be learned from the current dire state of global financial derivative markets it is that self-regulation is a myth conjured to avoid needed regulation.

    In addition, I think you give too much credence to the belief that MNCs are actually concerned with their public image. A documentary might highlight the plight of sweatshop workers manning supply chains, but Nike has commercials airing round the clock with Kobe Bryant and the Jabbawockeez. Their ability to amplify and present a certain public image beneficial to their business is exponentially stronger than that of labor rights activists etc.

    Finally I agree there must be some international agreement on issues related to labor, the environment, and property rights. Stiglitz’s “global competition law” is perfectly representative of what we hope is possible. However, we have to ask how these international institutions would be set up. Would western states craft rules that would create bais towards their interests and subsequently the MNCs? This is not a radical assumption to make either as we can point to the state of the IMF, World Bank, and WTO as perfect examples of this dilemma.

    You make relevant and accurate points. However, I do not believe a blind embrace of MNCs will eliminate the persisting conditions of inequality and impoverishment in countries such as our motherland. Good work lets discuss this more.

    Apratim

  3. Hello Apratim

    I greatly appreciate your feedback and contribution to this discussion on MNCs.

    I am glad that you agree that MNCs are an essential component in any framework that seeks to improve the plight of LDCs. In regards to self regulation of MNCs, my article seeks to highlight a particular case of self-regulation that ought to be considered as a way forward. With the increasing popularity of cap and trade schemes–which happen to be embraced by the Obama adminstration–self regulation of this type can indeed correct for market failures by adding incentives for firms to carefully consider environmental laws and reduce the risk of bad publicity. My point is that we need smarter regulation, not a lack of regulation.

    In regards to MNCs concern with their image, I would point you to a variety of recent marketing campaigns from the likes of British Petroleum (recently rebranded as “beyond petroleum”), Chevron (with its “willyoujoinus” campaign), and others to gain a grasp on just how important corporate social responsibility is becoming in an era where one bad story can spell disaster (let’s not forget what happened when Nike cancelled the order on the infamous pair of customized sneakers from a customer who wanted “sweatshop” stitched onto the pair.)

    As you recognize, we must now ask the right questions to gain a better idea of how new international regulation frameworks should be set up to fully consider the needs of LDCs and the incentives of MNCs.

    I look forward to continuing this discussion.

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