INCREASING IMPORTANCE OF MULTINATIONAL CORPORATIONS (MNC)

Introduction

The world has experienced a continuous shift in its economic plays. Its primary drive was the
Industrial Revolution of 1760, which ushered in the new industry and manufacturing businesses,
shifting the world's attention from the business of agriculture and handicraft. The industrial
revolution paved the way for innovative ways of running businesses and creating wealth through
increasing demand. This paradigm shift featured technological, socioeconomic, and cultural
change; that is, there was a rise in technological advancement, the establishment of
socioeconomic and cultural invented businesses, and production of products and rendering of
services to meet the rising demand. This period also experienced non-industrial changes like the
evolution of political scenes, economic changes pinned to widen wealth distribution [CITATION
Bri21 \l 1033 ]. The first and second industrial revolution being the primary drive to
industrialization, technological advancement, international trade, and monumental business
investments, necessitated the emergence of multinational corporations.

In the world of today, the increasing importance of multinational corporations cannot be

overemphasized. Multinational corporations have an economic role of driving capital,
technology, and in general, development to countries where there exist shortages [ CITATION
Qui13 \l 1033 ]. The growing interconnectivity of the world has posited the necessity for countries'
interactions with countries and corporate bodies to countries, thus, reiterating the need for
multinational corporations. A proportion of economic growth, reduction in the distribution of
wealth discrepancy among nations, and increased human capital development are accrued to the
increasing and establishment of multinational corporations' operations.

CONCEPT AND MEANING OF MULTINATIONAL CORPORATIONS

Multinational corporations, in simple terms, are business enterprises providing services and
products through manufacturing, sales, and or service subsidiaries, operating in more than one
country. They are also referred to as transnational or international corporations. These
corporations manage the production of goods, rendering service and business operations in more
than one country. The thin line between a company exporting products to other countries and the
multinational enterprise is the multinational enterprise's underlying characteristics to maintain an
actual business operation in another country and contribute to the country's economy by making
Foreign Direct Investment (FDI).

A multinational enterprise is a company that uses FDI to cross national borders without using a
market exchange to coordinate production [CITATION Dic98 \l 1033 ]. The emphasis here is on legal
ownership of activities in at least two countries as a multinational company's distinguishing
characteristics. A multinational corporation is a company with the ability to coordinate and
manage activities in many countries, even though it does not own them [CITATION Dic981 \l 1033 ].
Multinational corporations, on the whole, own properties in other nations. On the other hand, this
concept implies that multinational corporations do not need to own productive assets in other
countries to exercise power. They can, however, exert influence by engaging in legally bounded
partnerships that span national borders [ CITATION Sha09 \l 1033 ].

Multinational corporations have significant influences on economies wherein they operate and
also on the world economy. They play crucial roles in fostering international relations and
enhancing the concept of globalization. Business organizations, just like many other social
institutions, interact with the growing change business environment. The increasing demand,
technological advances, globalization, the organization's growth and survival, and many others
are effective influences that supported multinational companies' emergence and operation.

The establishment of multinational companies is taking up the face of being a resource-based

multinational company, operating in other countries, to purchase raw resources or a
manufacturing company that produces products that it has comparative advantage to produce in
larger quantity and standards. A multinational enterprise could be a service institution leveraging
its technical ability to render a service efficiently like insurance or a public utility company
where it renders services or produce, with a state-backed monopoly [ CITATION Bus201 \l 1033 ].

IMPORTANCE OF MULTINATIONAL CORPORATIONS

The modern-day economic outlook and performance have identified the actions of multinational
companies as pertinent. There is a direct link between multinational corporations' fast-paced
development and the widespread economic globalization [ CITATION Osi14 \l 1033 ]. One can
categorically not address the global economy's continuous evident growth without firm reference
to multinational corporations' existence, performance, and development. There is increasing
importance for multinational corporations' operation and development as it translates to a better
global village.

Multinational Corporations and Globalization

Globalization is an extensively complex and contemporary issue of discourse that has no solely
acceptable explanation. It is defined chiefly as aligning the different trends and perspectives,
which makes it a complex phenomenon. Globalization is also termed the growing
interdependence and interconnectedness of the world's people, integrating the economy, culture,
technology, and governance. Humans are increasingly connected, affected by the happenings of
different far ends of the world [ CITATION Uni991 \l 1033 ]. After the second war, there was an
imperative need to address the term "globalization" and create a new world of order that permits
people's peaceful coexistence regarding each country's border and sovereignty. The post-collapse
of the Soviet Union iterated the implication of globalization, shifting the idea of globalization to
the concept of "global village." This concept of globalization ensures the world benefits all and
sundry [ CITATION Uni991 \l 1033 ] . The world has been identified to be interdependently webbed,
and therefore, no part erects solely. The general public translates globalization to mean high
international integration; that is, there are plenty of activities shared beyond national territorial
boundaries – trade, production, leisure, and culture.

Globalization is a process of international incorporation factored by the growing demand at the

global level for products, services, and capital. The continuous development evident in various
fields such as transport, information communication and technology, and education has
incessantly encouraged the process of international integration and interdependence [CITATION
Mar151 \l 1033 ]. The disproportionate balance in social and cultural environment coupled with
the economic disparity of different countries has increasingly strengthened the argument for
globalization; thus, it intercedes in creating an accessible world for all parts.

The concept of globalization has paved the way for multinational corporations' growth and has
eased their operations in various parts of the world outside their home countries. Notably,
globalization and the increased growth of multinational corporations have both immensely
contributed to the global economy. The penetration of corporations into new markets – under-
developed and emerging markets – has significantly supported the globalization concept; thus,
creating equal access to global products and services that are initially not accessible due to the
absence of globalization. Alternatively, the expansion of multinational companies and its
growing global acceptance continuously asserts the essence of globalization, fostering
development, improving social welfare, and strengthening the acceptance of the world's concept
as a global village.

Consequently, the presence and significance of multinational corporations are seen as they have
put the developed peculiar advantages that to service of world development. In other words, the
multinational corporations have remarkably contributed to the development of the globe in terms
of improving the economic status of countries they are present in, such as increased employment
rate, economic growth, higher standard of living, etc., which marches to translate a shift in the
global economic stance. The ability of multinational corporations to amass financial, economic,
physical resources, and labor worldwide and concretely make them economically and
commercially feasible and profitable, multinationals' resourcefulness to develop new
technologies, skills, and products. Their managerial ability to transform all resources accrued to
them into specific sellable outputs has proven commendable. It stands as an essential tool in
substantiating the concept of globalization [ CITATION Elu161 \l 1033 ].

The Role of Multinational Corporations in Developing Economies

Over the decades, the emergence of multinational corporations has presented the world with a
new path to achieving sustainable development goals. Multinational companies, widely involved
in businesses ranging from consumer products and services and extending to financial and
management services, technological and construction services, have assiduously seized the
opportunity of globalization coupled with leverages on innovation and information
communication technology to expand their economies of scale and build business empires and
amass wealth.

There exists a unique relationship between economic development in developing countries and
the inflow of capital; Foreign Direct Investment (FDI). Foreign Direct Investment translates to
foreign capital inflow into a country – developing country – from the establishment, operation,
and investment of multinational corporations. The relationship holds that any multinational
corporation running operation in a country, rather than its home country, adds value to the host
country's economic growth. The yardstick for measuring the economic growth for any country
includes the contribution of Foreign Direct Investment (FDI), that is, earnings accrued from the
business of these multinationals in the country. Capital inflow from these multinationals finance
the country's deficit, that is, substituting for imports [ CITATION Bry99 \l 1033 ] . It has been
theorized by the Harrod-Domar model of growth that one of the best ways to enhance economic
growth is through capital inflow from abroad.

Moreover, the operation of multinational corporations in developing countries consequently

influences key economic determiner of the host country. For a country with idle labor,
multinational companies intervene by recruiting the masses, thus, reducing the unemployment
rate, which consequently translates to increased demand for goods and services, improving the
standard of living and social welfare of the people residing in the host country. Foreign
investment accrued from multinationals stimulates infrastructural spending, therefore facilitating
economic development.

Notably, the continuous growth and expansion of multinational companies in developing

countries help in the diversification of the economy—the economy shifts from its concentrated
dependence on primary products and agriculture. In supplement, multinational corporations play
an essential role in upscaling the skills of citizens of the host country to meet the increasingly
challenging nature of job requirements in their firms. These firms improve the skills of citizens
and residents of their host country, which means an increased human capital resources for the
country.

Conclusively, the empirical evidence excerpted from World Bank and the United Nations firmly
informs that in the last 40 years, the multinational companies are a core facilitator in bettering
the welfare and reducing poverty in developing countries. And in the least developed countries
where the poverty rate is overwhelming and shows minor improvement, there are limitations
and/or harsh policies mitigating against the establishment of multinational corporations
[CITATION Uni992 \l 1033 ] . The role multinational corporations play in developing countries is
crucial and critical. They, directly and indirectly, contribute to growth through direct job
creations, the flow of capital, and ecologically friendly technologies. Multinational corporations
have indirectly affected education as it is conditional to a better standard of living, increased
income, and social welfare. The presence of multinational corporations accounted for the
increased social welfare of many developing countries in Africa, East Asia, and other parts of the
world [ CITATION Qui13 \l 1033 ].
Multinational Corporation and Technology

The development of multinational corporations stimulates a progressive approach when

technology, innovation, and ease of living are presented in discourse. The emergence of
transnational corporations ushered in technological advancement and innovative approaches to
solving problems and creating products by industries. Manufacturing industries in Singapore,
Southern Asia, and other emerging economies are apparent beneficiaries of the technological
advancement that followed the multinationals’ fast-paced growth [ CITATION Won00 \l 1033 ] . The
technological and innovation capabilities of China can be factored to be a resultant effect of the
foreign direct investment earned from multinational corporations [ CITATION Zha01 \l 1033 ].

Evidently, multinational corporations have been on the lead in the technological space, tied to the
expansion, wide range of human capital resources, and continuous research and development
investment. The vital contribution the multinationals have made in the technological space can
be said to have drastically improved human interaction and growth.

Multinational Corporations as A Bridge Breaching Global Economic Gaps

The role of multinational corporations extends beyond running businesses and amassing wealth
to the pockets of their shareholders. The role they play in the global scene as agents of continued
economic globalization. Multinational corporations have been identified as a social force, with
their rapid development and widespread establishment, to breach the wide gap of global
economic discrepancies. They stand as connectors of the two worlds – developed and developing
nations – as they, effectively and significantly, influence the growth of economies of developing
nations, thus, closing gaps of economic imbalances and unequal distribution of wealth. There is
an increasing influence of multinationals on the host countries, mainly developing countries, via
key economic factor improvements, such as decreasing unemployment rate, education,
increasing human capital development, and other crucial core determinants of growth.

The developing economies could find it nearly impossible to build and develop some crucial
industrial sectors, thus, paving the way for multinational corporations' interventions as the New
Trade Theory posited [ CITATION Elu161 \l 1033 ]. These interventions help increase developing
countries' stand of chance compared to the developed worlds, therefore, downsizing the
discrepancies that exist between the two economies – developing and developed.
Other Importance of Multinational Corporations

Capital Formation: The huge capital formation potentials of multinational companies, which
resultantly drive economic growth, stability and influences the market. Multinational
corporations mainly control the global market share, taking a large proportion of their market
share. The development of multinational companies cannot be overemphasized as it has a
significant effect on the global market; therefore, a simple shake in multinationals' existence will
directly have a drastic impact on the global and market economy.

Improved Environment: Multinational corporations have continuously contributed to the

improvement of global ecology. Multinational companies tend to include in their business
approaches that instead increase the healthy co-habiting on the globe. It can be deduced from
multinationals like Microsoft, Unilever, Google and their fight against global warming. Critical
environmental issues such as climate change, food waste, biodiversity loss, deforestation are
being tackled by the invention and innovative approaches that emerge from these multinational
corporations.

Export-based Industrialization: A strong export capacity of any nation is highly beneficial if

such a nation craves to leverage international trade benefits [ CITATION Sha09 \l 1033 ].
Multinational corporations have been a leverage for developing countries to increase their export
base and tap its advantages.

MULTINATIONAL CORPORATIONS AND THE IMPACTS ON SOVEREIGNTY

One of the most controversial issues faced by the growing multinational corporations'
establishment and its spread is at the expense of host state sovereignty [ CITATION Kap06 \l 1033 ].
There has been a rise in agitations by the anti-globalists that multinational corporations usher in
more threats to the state's economies than boons. Recent findings have negated this ideology as
multinational corporations' foreign direct investment has bridged economic gaps and increased
sustainable development.

Sovereignty is the recognition that there is a supreme authority, ultimate overseer in making
decisions and maintaining order in a state. There are discrepancies in the political and
international relations idea, which makes it difficult to term sovereignty to have a definite and
widely accepted concept [CITATION Bri20 \l 1033 ]. In this context, sovereignty stands at the central
idea of authority, legitimacy, and power in the decision-making and maintenance of order in a
state.

In its business of integrating developing economies into the global economy, multinationals,
directly and indirectly, help develop the host state. The state must allow ease of penetration into
the market by enabling liberal trade practices and open borders to allow for the more wide reach
of multinationals products and growth[ CITATION Bal68 \l 1033 ]. Multinational corporations
agitate for policies, tax breaks, subsidies, and free land to invest in a state; this accrues to a
multinational corporation’s tremendous power. [ CITATION Mor05 \l 1033 ].

The impacts on state sovereignty are not in the sense of hijacking power from the state authority,
but the multinationals, due to their vast investment and significant economic drive, could mar the
state authority's independent policy-making. Multinationals influence the policies of the
government to suit its pursuit of profit maximization. Multinationals are not independent of the
state they operate in. Neither is the state totally a free entity as the relationship is mutual; they
are both affected by the decision made on both ends. The state's power could be seen to have
been trampled upon by the influence of multinationals; that is, in the multinational corporations'
pursuit to maximize the external factors – threats and opportunities – they, through social interest
groups and lobbyist advocate for favorable policies and allocation of resources.

Conclusively, the power of multinational corporations on the state sovereignty has a connection
to the growth of the business, which resultantly translates to an apparent development in the host
country. The influence of multinational corporations would increasingly be critical as more and
more states seek foreign direct investment to effect economic growth.

CONCLUSION

The role and the increasing importance of multinational corporations cannot be over-appreciated
in the global economic space. The general effect of transnational corporations on the growth and
sustenance of globalization has a multiplier effect on the global economy and bridging the gap
between developed and developing nations. The direct importance of these multinationals on
developing countries' growth, the substantial impact on the improvement of human capital, and
generally, on the social welfare of the global citizenry has asserted the inevitability of
multinational corporations. The impact of multinational corporations on sovereignty is
tremendously growing and essential considering the type of relationship shared between the state
and the multinationals and the strong influence of both parties’ decision hold.

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