The benefits and harm caused by Transnational Companies.

by greean_ferra (student)

Essay Practice“TNCs bring more benefits than harm to host countries”. To what extent do you agree with this statement?

TNCs, or Transnational Companies, refer to large global companies which operate worldwide productions with different functions taking place where it is the most profitable. Over the past decades, globalization has resulted in major technological advancements in transport such as containerization and cargo ships, as well as rapid developments in communications such as the internet. This has brought about the dramatic increase in size of and numbers of TNCs. As more TNCs are being set up in other countries, there have been incidences of both positive and negative impacts on the host countries, which are the countries which the TNCs are present in because of the international agreement between the TNC and the country involved. Over time, it has been noticed that host countries do benefit from TNCs, and these impacts include a more guaranteed income for the local workforce and boosting of the local economy. At the same time, as problems such as exploitation of workers surface, it appears that TNCs bring more harm than benefits to these host countries.

When TNCs set up their firms in the host country, they create job opportunities for the population, hence with a stable job; the local workforce receives a guaranteed income. For TNCs which were situated in Less Economically Developed Countries(LEDCs), most of the population do not hold a stable job or are jobless, these TNCs provide these opportunities for them to be employed, thus earning money. TNC, being an industry, has backward and forward linkages so that outsourced component parts can be supplied to them and their products can be further processed and manufactured into a larger products. Thus, the jobs created for the local population are not only for the people directly involved in working in the TNCs, but also workers in the supplying firm and workers in the manufacturing firm. In fact, TNCs directly employed around 45 million people all over the world and provide jobs indirectly for millions more workers. For instance, a European-based TNC involved in gas and oil production, Shell, operates in 140 countries and create plenty of jobs – more than 112,000 worldwide. More specifically, in Nigeria, Africa’s leading oil producer, Shell has employed 5000 people, 95% of whom are Nigerian and 66% from the local delta area. Furthermore, another 20 000 people are indirectly employed by the companies providing supplies to Shell and services to consumers. Therefore, Shell in Nigeria has benefitted the population in Nigeria by providing the local workforce with a guaranteed income.

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At the same time, the economies of the host countries are boosted as the economic bases of the countries are widened. With the addition of TNCs into the host countries, it adds to their economic activity. Instead of usual sectors such as agricultural sectors, the host country now can venture into the manufacturing and service sectors. According to Rostow’s Model of Economic Development, if the TNC thrives in the host country, the host country can climb up the ladder of economic development. Without the TNCs’ input into the host countries’ economies, the host countries, being mostly, LEDCs, will be at Rostow’s 1st stage of economic development where it is characterised by its high levels of labour intensive work and agricultural sector. With TNCs, the host countries receive external help which encourages increasing industrialisation. When the number employed in the agricultural sector declines due to the TNCs’ jobs opportunities, there can be self-sustaining growth and high output levels in the host countries. Gradually, the host countries will be able to follow the linear stages of the model, hence reaching a higher economic level of development. Furthermore, when the economic base is widened, other firms and industries are attracted to the host countries. In a similar manner, more jobs are created for the local population while the foreign investment continues to increase. This will lead to expansion of new businesses in the economy, and thus eventually an increase in the general wealth of people and standard of living. This multiplier effect eventually raises the total purchasing power of the population, creating more wealth and services. Therefore, these host countries, especially LEDCs, are able to climb up the ladder of economic development.

Unfortunately, problems surface over time and it is noticed that the labour force, especially in LEDCs, is often exploited. As TNCs are usually profit-maximising companies, they aim for high efficiency and to please the consumers of their goods. Therefore, the welfare of the workers under their hands is not their priority. More often than not, TNC owners take advantage of the workers who are extremely desperate for work and exploit them. They are paid extremely low wages and work for very long hours. Although there will be inspections, most inspections focus on the product quality and neglect the labour conditions of the working force. Most of the time, young children are employed and membership of unions is prohibited. An example of an exploitation case would be in Shaxi, South China. In Shaxi, there is a famous jeans company, Lifeng, which exports jeans to many Western countries. In order to satisfy their customers’ needs, the boss hardly bothers about the welfare of his workers. They work from 8am to 7pm daily and often do overtime till about 2-3am. Moreover, they work 7 days a week for months at a time and do not receive overtime pay or the minimum wages required by China Law. The wages paid are very low, only ½ yuan(6cents) per hour or about 300 yuan ($36.00) per month. As for their working conditions, their break time is used to do chores if not they would need to sacrifice their sleeping time. Evidently, these workers are not treated fairly by their employees. In addition, this is a long-term problem which cannot be solved. Firstly, the workers, who are uneducated, are unable to see the long term benefits of seeking justice. They are afraid to tell on their bosses during inspectors for they fear losing their jobs. Also, their bosses pay them extra wages if they present a good image of the company. Secondly, since these workers are extremely desperate for work, they put more priority on the amount of wages they receive rather than the working conditions they are subjected to in their work environment. Hence, it brings about a long-term negative effect to the host countries of the TNCs.

The extent to which impacts due to TNCs affecting host countries leans towards the harms rather than benefits. Although more job opportunities are created for the local population in the host countries and overall, lead to a boost in the economy, these benefits of TNCs in host countries have indirectly brought harm to host countries. As more jobs are created for the local population, more people become employed and thus more workers are being exploited. They are hence trapped in a vicious cycle, unable to solve it. Hence, the overriding impact of TNCs in its host countries is the harm brought to it, the exploitation of labour. Therefore, the statement that TNCs bring more benefits than harms to its host countries is also agreeable to a limited extent.