We hear about them all of the time. We hear about all of the destruction they are causing to third world countries. How much do we really know? Multinational Corporations are the cause of a great deal of controversy in the business world. Some say these monster businesses do nothing but destroy the economies of developing countries, but others argue that they are beneficial as they provide labor for many people. It is important to understand the basics of multinational corporations, sweatshops, forced labor, and unions before we pick apart individual companies.
A company must fit a certain set of generally accepted criteria in order to be considered a multinational corporation. The ownership of the company is key, and should be international1. For example, British as well as Dutch interests control two prominent multinationals, Shell and Unilever. By this definition however, very few Multinational Corporations (MNCs) are in fact multinational. The definition has been loosened to include large companies that have central headquarters in at least one country and several smaller divisions around the world that are run nationally but also managed internationally.
MNCs move around the globe for several reasons. Of course, the first reason that is usually pointed out is that they can easily avoid export and import tariffs and get a tax break. If a company were operate only out of their home country, they would have to pay import tariffs on any materials they brought in from outside the country, and they would have to pay export tariffs on any products they shipped outside the country. By producing internationally, they avoid many of these tariffs.
Taxes in these third world countries are often less than the taxes the company would have to pay if they reported all of their production in their home country. Secondly, moving into these countries allows the MNCs to access very inexpensive labour, thus creating a greater margin of profit. When discussing this cheap labour, there are often several different terms used, such as sweatshops and forced labour. Sweatshops are generally considered as factories in which the working conditions are very poor.
2 Workers are paid below what is considered a livable wage, are given no benefits like health plans, or dental coverage, work overtime hours without an increase in pay, and are often subjected to sexual harassment or in some cases – particularly in the least developed countries – physical abuse. There are some Multinationals that use forced labour. Forced Labour is "all work or service which is exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily"3.
It is a common misconception that all Multinationals that operate in third world countries treat their employees terribly, and that they serve only as a menace to the country's economy and culture. Some are better than others, and they are not all good nor are they all bad. One MNC that we have looked at recently is Unilever. This company is responsible for the production of food, household products and personal care products. They bring in billions of dollars every year from sales in over one hundred countries around the globe.
4 Unilever has outlined strategies to address their environmental and social responsibilities. They have joined with WWF and the Marine Stewardship council to address issues concerning "the long term viability of global fish populations and the health of the marine ecosystems on which they depend"5. Although these seem like wonderful initiatives to make the world a better place, this is the same company that is subjecting employees to extremely unsafe conditions on their palm oil plantations.
Workers in Malaysia earn below industrial wages and are exposed to lethal pesticides on a daily basis. No protection is given to employees from these chemicals. 6 This is a clear example of a corporation that is taking great strides forward but at the same time holding their employees welfare behind. Walmart is an MNC that is a lot closer to home, and the effects are felt a lot closer to home as well. The company portrays itself as being a community-based company, friendly and welcoming, and understanding of the needs of the modern family.
Walmart employs approximately three quarters of a million people. 7 Of these, many qualify for food stamps. Walmart does not provide employees with reasonably affordable health care plans, and there is only one unionized Walmart store in the world, and it is in Canada where the labour laws are a little bit tighter. Walmart products are also advertised as being made in the USA, and while some are, there are also some that are produced in China by forced labourers, some of whom are children.
This goes to prove that just as there are some companies that are seen as being all bad who are actually doing some good things, there are also companies who are seen as being solely beneficial and are taking advantage of their status as a large corporation. Another drawback of multinational corporations is that they unfairly target the markets within third world countries. Take Coca-Cola for example. They have invested one hundred and five years of advertising and marketing to make their product as well known as it is, but this is not just within the western world.
8 Coca-Cola has more than three hundred different brands in over two hundred countries around the world. 9 It goes without saying that they have taken advantage of the cheap unskilled labour that is abundant in many developing countries around the world. When a multinational corporation moves into one of these countries, it is only natural that they would try to sell their product within that country.
This wouldn't seem so terrible until you take into consideration the fact that it is in these countries that people spend all of their money on the bare essentials. Advertising for these luxury products targets these people, commands a disproportionate share of the market, and decreases the quality of life because people are not able to afford necessities when they spend what little money they have on products like Coca-Cola. 10 Even though the MNCs are providing much needed jobs in developing countries, they are also providing a destructive new market.
It is always promising to see multinational corporations making serious attempts at bettering themselves, and bettering the working conditions in their factories, establishing regulations prohibiting the use of forced labour and requiring the payment of minimum wage. Goodyear is one such corporation. Though they are nowhere close to perfect, they have made some moves in the right direction, and are committed to maintaining their positive image. In their list of values, they indicate that they value operating "globally as a socially responsible corporate citizen"11.
Through all of my research on multinational corporations, I have come to a rather inconclusive conclusion. There will always be benefits of having a multinational corporation operate in a developing country – both for the host country and the home country. To the same effect, there will also always be drawbacks for both nations involved. Rather than making blanket statements that label all MNCs as being good or bad, we need to look at each corporation and each circumstance individually, and assess the situation based on the facts.