Multinational Corporation (MNC), sometimes called transnational corporation or international corporation, is a business that produces or distributes products or services in one or more foreign countries by establishing a branch or affiliate there.
A branch is a part of a company that is located in another country. • An affiliate is a company partially or entirely owned by another company. • MNCs engage in foreign direct investment (FDI)—that is, investment in one country by citizens of another country.
Types of investment: • Acquiring an existing company. (Airtel - AT&T.- Cingular Wireless – Digicel). • Merging with another company (CIBC and Barclays = First Caribbean) • Creating new facilities or activities. These are referred to as greenfield investments.
Large multinationals have budgets that exceed those of the country they are operating in. • MNCs can have a powerful influence in the local economy. • They can have a significant impact on government policy, mainly by threatening to close their operations
Multinational corporations play an important role in globalization • MNCs develop new products in their native country and manufactures them abroad, often in Third World nations, where labour is cheap. • Almost all the largest multinational firms are American, Japanese, or West European
MNCs in the Caribbean • Cable and Wireless • Digicel • Price WaterhouseCoopers • Courts • Sunsail Club Colonna • Sandals • Hilton • Four Seasons • Royal Bank of Canada • First Caribbean Price • Scotia Bank • Stanford Development Company • Texaco • Shell • Alcan • Tate and Lyle
MNCs have always featured in Caribbean econmies. • The Colonial office encouraged UK companies to invest in the colonies • After WW II, the region tried Industrialization by Invitation. Under this scheme companies were given incentives to set up industries in the Caribbean e.g. tax holidays, factory sheds, exemption from duties on imports etc.
Advantages of MNCs • Employment– jobs will be created in construction, banking, manufacturing, or tourism sector • Foreign exchange – this will be generated from tourism, bauxite, petroleum. • Transfer of technology – workers can be trained while working in the MNC and then move to other firms with their skills. Also domestic producers can copy the technology and best working practices of the MNC.
Taxes – MNCs pay taxes and thus contribute to significant revenue to government’s finances. • Development of infrastructure – some MNCs may develop the infrastructure of the area where they are located, or government may do so to accommodate or attract the MNC.
Disadvantages of MNCs • Closure of local firms – MNCS can dominate the domestic market which can lead to the closure of domestic firms. They can produce and sell goods and services cheaper than the domestic producers thus lowering domestic profits and investments • Repatriation of profits – the bulk of profits may be sent back to their shareholders in the home country.
Reduced gain for the host country – governments will give tax concessions, rent free sites, government contracts to MNCs as incentives. The more they give the less they gain. • Non-transfer of technology and skills – MNCs may guard the skills and technology they possess • Migration – migrants may move to a country to seek employment. This may put a strain on the social services of the host country.
Environmental damage – MNCs may exploit a country’s natural resources without any attempt to preserve the environment. The increased use of herbicides and pesticides, the indiscriminate dumping of waste generated by hotels and cruise ships will lead to environmental degradation. • Political influence – MNCs often exert considerable power and influence over political leaders, the police and civil servants. They may sometimes meddle in local politics.
Recommendations • A new development strategy underpinned by political will. • The pooling of efforts and resources among Caribbean nations • Regional integration
Sources • The Caribbean in the Global PoliticalEconomy, edited by Hilbourne Watson • Storm Signals, Cathy McAfee • The Caribbean – Survival, struggle and Sovereignty, Catherine Sunshine • Consequences of Structural Adjustment: A Review of the Jamaican Experience, Editor, Elsie Le Franc.