The table above is self explanatory; it clearly shows how broad the gap is between the richest and poorest nations. The GPD ratio of the richest country and the poorest country is 1:350 and the GPD per head ratio of the wealthiest country and the poorest country is 1:17342.
Benefits and Concerns associated with Multinationals Activity
It seems many authors are concerned with the role of multinational’s in the third world countries and identify a number of problems associated with foreign direct investment. Equally there are others who argue that multinational’s activity can drive growth and development. Firstly let’s look at the De George’s (1990, 7) benefit of multinational corporations
- Multinationals invest in an area may result in a significant injection into the local economy. This may provide jobs directly or through the growth of local businesses. Also initiate a multiplier process generating more income as newly employed worker spend their wages on consumption. It can also lead to decline of unemployment rate in the host country.
- Most multinational’s provide some forms of training and education for employees as a result operating a better or higher skilled labour force. The skill then may be transferred on other areas of the host country.
- Multinationals contribute tax revenue to the government and tax authorities; this will undoubtedly increase the government budget.
- Proving access to modern technology.
- Translating theoretical knowledge into the practice.
In the light of these benefits there are concerns associated with multinationals, De George’s (1990, 7) list them as follow
- As many multinationals are very large and have considerable power they can exert influence on government to gain preferential tax concessions and subsidies and grants.
- Multinationals investment in the third world countries are often endowed with potentially large low wage labour forces.
- The multinationals may employ largely expatriate managers ensuring that incomes generated are maintained within a relatively small group of people.
- The attraction for the multinationals may be the large supply of cheap manual labour who they can employ at low wages. It will not lead to the transfer of management skills.
- Repatriation of profits to parent company.
- Some multinational companies have been accused of bribery, using child labour, sweatshops and so on.
Ethical Approaches
Obviously not all multinationals are involved in illegal business practice; if they did they would have ended-up in court throughout the world. However to decide whether there action is ethically justifiable we need to employ appropriate ethical frame work. There are two main alternatives ethical approaches. Which are non-consequential ethical approach and consequential ethical approach.
Firstly non-consequential; this alternative approach is also known as deontological. Every time we reference a law, a rule, a code, or a guideline, we are using non-consequential ethical theory to reinforce our position. Likewise, if you are acting out of a sense of duty or obligation, you are using non-consequential judgment. The idea behind non-consequentialism is that the action itself should be the focus of decision making, not necessarily the outcome of the action. Some actions are simply right or wrong by nature. Ronald M. Green (1994, 8) defined right action in a specific situation “as what best conform to this set of moral rules”. Most laws, codes, policies, and regulations are the result of non-consequential ethical thinking: generally the result of people coming together to make guidelines by which to govern their own actions.
The second and the one I will be using, is the consequential ethical approach. All consequential theories contend that the moral rightness of an action can be determined by looking at its consequences. If the consequences are good, the act is right. If the consequences are bad, the act is wrong. What is right is determined by the considering the ratio of good to evil that the action produces. So this theory simply judges the rightness of wrongness of an action based on the consequences that actions has. The most familiar example of consequential ethical approach is utilitarianism. Jeremy, Benthan (9) stated “that action is best that produces the greater good for the greatest number”.
Impact on Stakeholders
Now we have ethical tool and some idea of the impact of multinational companies in the third world countries, let’s look at the effect on the core stakeholders to arrive at utilitarianism justification. Let’s just envisage MG Rover Group wish to relocate there factories in Sudan (East Africa).
Board of directors; they want the company to be profitable and grow. These group of people will make a strategic decision to move there factory in different country, when they reach the decision to relocate they would have considered all the benefits and disadvantages of the action, so when they do relocate it will have a positive outcome for the board of directors.
Managers; they want job satisfaction, job security and a good environment to work. Some managers might retain there job by moving with the company. However it could have family complication. So for most managers the decision could have negative effect because relocation means a possible lose of job.
Employees (UK); like manager’s employees want job satisfaction, job security and a good environment to work in. for this group of people relocation will have the most unpleasant effect than any group of stakeholder. Because most certainly majority of the workers will lose there job.
Trade unions; represent some or most of the workforce, there are many things that you can do in the work place to promote debate and develop the right of there members. The always fight redundancies and for improved working condition. So relocation will have a negative effect on the trade unions.
Shareholders; we can say this stakeholders are the owner of the company. The reason almost most people purchase shares is to maximise there wealth. If relocation going to bring more profit to the company, (in most case it does) and boost shareholders dividend, relocation will have a positive effect on the shareholders.
Government and government Authority (UK); generally speaking they want to have low unemployment, stable economy, higher living standard for the public. Relocation will have a negative effect on the above three. So effect will be negative.
Customers; they want quality product or service with a reasonable amount of money, if the company is going to have the same quality standard and pass the cost saving to its customers the effect can only be positive.
Local business (UK); many of small business revenue may depend on the employees of the factory, relocation and higher unemployment in the local area could have terrible effect on the local business and local economy.
Suppliers; the effect on suppliers is vague because it will depends on the size of the supplying company and the agreement the have with GM Rover Group, in some case the supplying company may carry on supplying there product or service even after relocation.
Potential employees in Sudan; this group of people may not necessary have a job. So to receive a training and to be employed by multinational company can actually transfer the individuals and there family life. The effect of relocation will be positive.
Government and government authorities in Sudan; like any other government the wishes of the Sudanese authority will be to have low unemployment, stable economy, and higher living standard for there public. So relocation of MG Rover Group will have a positive effect on the above issues.
Local business in Sudan; as newly employed worker start to spend their wages on consumption the local economy and local business will significantly benefit. So the effect on the local business can only be very positive.
Evaluation of the Scenario
As we seen from the above scenario there are stakeholders who benefit and lose-out. For employees and local businesses in the UK it brings extremely negative outcome, in the other hand many of the stakeholders will benefit. In addition we need to remember that not all multinationals investment in the third world is due to relocation. The above cause could have been GM Rover Group opening additional car manufactory in Sudan rather than relocation where by very few stakeholders will lose-out.
The UK economy is the world 4th largest economy. For the past 30 years the manufacturing industry has been declining in the other hand the service industry has been growing. Relocation or closer of few manufactories will not have a significant impact on the economy as a whole that is because of the size of the economy as well as growth in the service industry.
Sudan is one of the poorest nations in the world. Its GDP is a fraction of the UK’s GDP. A handful of multinational companies’ investment could dramatically increase the country’s GDP & GDP per head,
Conclusion
As I stated earlier the consequential ethical approach is determined by looking at its consequences. If the consequences are good the act is right, if the consequences are bad, the act is wrong. So in the above scenario the good overshadow the bad. By using utilitarianism approach we can justify the action is ethically right.
The reason the developing nations are called third world is because they have extensively low GDP, GDP per head and very high unemployment rate in some areas well over 50%. All the evidence lead me to believe multinational companies in the third world can help increase GDP, GDP per head, reduce unemployment as well as significantly boost the local economy of the host nation.
The research I have carried out and the evidences lead me to conclude multinational companies benefit the third world. Nevertheless there are some unease associated with multinationals in the third world such as exert influence on government, low wage, bribery, child labour and sweatshops. Apart from the latter two other concerns also exist in the developed nations as well. E.g. in the UK there are some companies particularly in the constriction and hotel industry who employ illegal immigrants and immigrants and pay them tiny amount of money. However this can’t be a base to criticise the whole constriction and hotel industry. There are laws and rules in place to combat such activity. So rather than accusing all multinationals, those who break the law and the rule should be hold responsible.
As a person who grow-up in the third world I can say employees of multinational companies get paid higher wage than there counterpart in the same country. Multinationals might pay fraction of what they would have paid in the developed countries. Why should we expect companies to pay the same amount of money when living cost varies country to country. E.g. in Ethiopian senior doctors get paid around £150 (2,000 Birr) per month, should we expect multinationals to pay more money for unskilled or semi skilled work force?. If companies are forced to pay the same amount of wage it will mean less incentive to invest in the third world.
As I pointed out above some of the third world nations have very low GDP and GDP per head. There government and businesses have very limited ability to change the condition without outside help. One way of reviving there economy is foreign investment.
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