Introduction
MNCs that is commonly known as multinational companies having it’s headquartered in one country while running its operations all over the world. Multinational companies have a great influence on World Trade and FDI also have a relation with multinational companies (CHEN, 2018). There are various factors that are contributing to the growth of multinational companies: Exporting of goods is not the good option because firm have to pay high tariffs and non-tariffs also there are huge trade restriction to export goods, and sometimes firms need to produce products according to the needs and want of the customers of the host country. Multinational companies also have a great importance, when the company wants to keenly overlook the activities and operations of the organization, and building plant in the host country help company to control management activities, quality of the product, production capabilities and to increase the efficiency of its operations.
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Main Body
The MNCs are important for various purposes however it is highly significant to increase the production capabilities of the firm through its cheap labor wages, also host country has ample amount of resources than its home country, that why they prefer to run their operations in other countries. According to a Business Insider report on “New York Stock Exchange Party” 40% workforce of top 25 countries are working outside its headquarters (Rogers, 2011). According to the report by “Great Place to Work Institution,” Microsoft has headquartered in the United States rank no. 1 in the list of multinational countries with global revenue of $69,900 million and operates in 25+ countries. The SAS come after Microsoft also have headquartered in the United States and earn revenue of $2,430 million globally. The other countries include NetApp, Google, and McDonalds etc. There is an upward trend in the growth of multinational companies, as it was only 19% in 1991 and move to 30% by the end of 1992, and consumer spending for MNCS will go to $20 trillion by the end of 2020. The multinational companies also bring an increase in technology transfer between countries also increase the prosperity and effectiveness of host country, and make the working processes and working conditions of multinational companies smooth. Brazil, Mexico, Canada, Libya, Argentina, Netherland are the suitable destinations for the multinational companies due to cheap labor rates and have an abundance of resources that will be helpful to increase production capacity and for the growth of their business. Multinational companies shift competition between those countries in which they locate, and create many social, financial, environmental and political disputes between different companies in which multinational companies have its operation. Many researchers argue that multinational companies weaker the economy of the home country, as it transfers the technology financial capital of home country into the host country that put a negative impact on the home country.
However, multinational companies bring many advantages in a host as well in the home country, but there are also many issues associated with the arrival of arrival of multinational companies namely political, financial, social and environmental issues. Multinational companies affect the economy and industrial structure of the home country and effect it negatively. Multinational companies create competition between foreign and domestic firms. The industries of the home country suffer due to the arrival of multinational companies, because multinational companies have the ability to produces product at cheaper rates than the manufacturer of the home country and have advanced level technologies, which puts a lot of pressure on home country industry and makes it difficult for them to compete with foreign investors. Multinational companies also create wages inequality because multinational companies mostly pay higher wages to its employees as compared to the domestic firm. Because multinational companies normally hire skilled, trained and well-educated staff and in return, they pay high wages to them, and it will create competition between multinational companies and domestic firms. It will give opportunities to foreign investors to expand their production capabilities through skill labor force and also reduce the number of jobs in the home country (Willis, 2017). Multinational companies also create a conflict of interest between foreign investors and host societies. Multinational companies operate in the different nation just for the sake to increase its global revenue generated from production and sales of goods and services and to increase its global presence. It creates a competition/conflict between the MNCs and host country on the issue of profits, patents, laws, and regulation and on major operational decisions. The host countries want to regulate the multinational companies in the way that align with social and political needs of its societies, however, MNCs operate operates totally opposite of this scenario, they want to operate in the manner, which is according to economic criteria. It will create the conflict between the multinational corporations and the host societies.
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Multinational companies also bring many financial ethical issues as companies’ aims to ignore tax. Foreign investors always try to minimize its tax liabilities and put efforts to make it as minimum as possible. Transfer of money is the best ways which help multinational companies to minimize its multinational liabilities. This can be done by reducing tax liabilities in the country, who have comparatively high tax rates and shift them into the countries where tax liabilities are comparatively low, for example in Canada, Brazil, Netherland, Mexico etc. because tax liabilities are less in that country. It makes the company profit high, however, government suffer in such scenario (Jeswani, 2014). It will also reduce the tax bill of multinational companies and they make higher profits at relatively low cost. The arrival of multinational companies may give rise to many social ethical issues comes as they come into the host country. The common social issue associated with multinational companies is the violation of human rights because workers are not treated equally and treated as inhuman as they work in multinational companies, due to lack of work balance policies (Perspectives, 2006). Not only this, multinational companies also bring political pressure to host country, because government have to change some of its policies, rules, and regulation when foreign investors come to the host country, these changes are made according to the requirement of multinational companies and also for the effectiveness and prosperity of foreign investors, but this political changes are not beneficial in long-term and create stressful situation for the host country government. The arrival of multinational companies also give rise to cultural disputes due to differences in people, and it will create disputes between workers. Multinational companies impact the host country in terms of exporting of the profit. Many multinational corporations send profit back to their home countries and leaving little financial behind for the host country (Tripla, 2008). Sometimes, multinational companies affect the environment of the host country and make it polluted because they mostly build their plant in under developing counties and due to chemical wastes, the environment of these countries become dirty. Smoke erosion also makes environment polluted and negatively affect the health of people living there. However, the government of the host country tries to make it environment free from all these hazardous changes, but still, it has a major impact on the environment.
To address those issues, different organizations, policies, and regulations play its vital role in this regard such as WTO, ILO, OECD and FDI policies. These policies will help host countries to reduce the ethical issues that come from the arrival of multinational companies. As foreign direct investment will help companies to expand its operation and enable them to exports their goods anywhere in the world with fewer trade barriers and tariffs, and also beneficial for multinational companies as it helps them to improve their productivity and to increase their growth and profitability. The Eclectic Paradigm Theory of foreign direct investment also helps firms to achieve social, economic and social benefits of the country. This theory gives the advantage of ownership, location, and internalization to the multinational companies and host societies. The Eclectic Paradigm Theory of FDI help host country to overcome the ethical social issues and promotes the cultural, also allow foreign investors to sell their goods and make their anywhere in the world where they may like through different agreement made between them and host country, as it will help to reduce the issue related with regulation of policies and ((Denisia, 2010). The government of the host country reduces the financial ethical issue via implementation of OECD principal as it will help to reduce the issue of tax evasion. Tax evasions or avoidance of taxes also become a serious cause of loss of government revenue and affect the economic stability of the company. When the government has little revenue in their hands, it will become challenging for them to provide basic necessities to its nation such as education, health, and other necessities like this. With the help of OECD rules and regulations, the government resolve issue comes from the evasion of taxes. The emergence of multinational corporations stresses to make policies and laws regarding human and labor protection. ILO will help companies to reduce the violation of human rights due to the arrival of multinational companies in the host economy. This law help to issues of labor such as lower wages and forced nature (Ebert, 2012). ILO ensures all time type of labor discrimination at work and strictly prohibits child labor (Rights, 2011). The government will be able to harmonize its financial, political and social disputes through the implementation of these policies. WTO (World Trade Organization) help both home as well as host country to reduce the dispute through enforcement of policies and procedure, and implement them in such a way that will give benefit to those.
Conclusion
In short, if the multinational companies have advantages, it has disadvantages too, but there are many law and policies to overcome this issue, however, it is important to implement that law and policies, otherwise, it will create drastic situation both for home as well host country. The efficiency and effectiveness of nations depend upon the enforcement of justice and integration of mutual cooperation of both counties. The multinational companies could not resolve until government would not make its sincere efforts to resolve this issue, and it would become possible via concentration on enforcement of a law, policies, and regulation into the nation. The companies should have to introduce technology and bring it at an advanced level as it is crucial for the success in the modern age. Now the world becomes a global village, it should have to promote cultural diversity because it will help to make work environment suitable for everyone because the dominance of one single group or nation over the others will create problems for rest of the world.
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