Duties of MNCs

MNCs have an obligation towards employers, customers, governments, suppliers and communities as well as towards shareholders. This is known as Corporate Social Responsibility (CSR).

Most agree that CSR includes a duty to behave honestly, legally and with integrity, not to be corrupt but to deal fairly and obey the host country’s laws.

Some MNCs would say that no more than this bare minimum can be expected of them. They would argue that the cost of CSR could eat into their profits and push them out of business.

“The UN once dealt with only governments. By now we know that peace and prosperity cannot be achieved without partnerships involving governments, international organisations, the business community and civil society. In today’s world we depend on each other.” Kofi Annan, UN Secretary General

Do MNCs help or harm?

· MNCs can help to reduce poverty.

· They can bring money into a country through employment and investment. Three quarters of international investment in developing countries is from MNCs and private sources.

· They can create jobs and raise labour standards.

· They can pass on expertise in their field.

BUT they can also harm…

The MNC can be guilty of pollution or human rights abuse (e.g. by sourcing products from factories where child labour is used or by forbidding its workers to join trade unions). The finance brought into a country by an MNC may be badly managed by that country’s government.

They can have a powerful influence in international relations, given their large economic influence in politicians' representative districts, as well as their extensive financial resources available for public relations and political lobbying.

Multinationals have played an important role in globalization. Given their international reach and mobility, prospective countries, and sometimes regions within countries, must compete with each other to have MNCs locate their facilities (and subsequent tax revenue, employment, and economic activity) within. To compete, countries and regional political districts offer incentives to MNCs such as tax breaks, pledges of governmental assistance or improved infrastructure, or lax environmental and labor standards. This process of becoming more attractive to foreign investment can be characterized as a race to the bottom.

(Sources: http://www.tiscali.co.uk, http://www.investopedia.com, http://www.cafod.org.uk)

Assignment 7. Read the following case study and answer the questions below.

China opened its economy to the west in 1978 and has shown the largest drop in absolute poverty (the lack of basic goods and services such as food, clothing and shelter to adequately maintain life) of any region. After two decades the economy has grown at rates reaching 10% per year. The number of people earning below US$1 a day fell from 260 million to 100 million. The Chinese government estimates that in 1999 the number reduced to 42 million.

A large part of this success in the last 10 years can be attributed to the growth in FDI. In 1990 the stock of FDI was US$19 billion, by 1999 it was US$300 billion. China has, as a result, become the leader among developing nations and second among APEC nations. Only the United States holds a larger stock.

Most of China’s FDI consists of greenfield investment where it has a comparative advantage, while in the United States FDI is generated more by takeovers of existing enterprises.

(Source: The World Bank Group, The Role of Foreign Investment and Multinational Corporations in China’s Development 1998)

1. Suggest one reason for the economic growth in China in recent years?

2. How has globalisation improved the standard of living in China?

3. Explain the term greenfield investment.

Assignment 8. Select an investment-related topic for independent research (e.g. offshore investment, investment risk management, foreign investment in Belarus, etc.). Prepare a 5-minute presentation (be ready for an oral presentation and submission in the written form), using visuals if necessary. Your task is to demonstrate both your presentation skills and thorough understanding of the topic chosen. Your talk should be logical and well-structured (i.e. contain an outline covering the main points you want to make, objectives of the talk, conclusions) and appreciated by professionals in the research field (try to present interesting data to keep their attention, avoid platitudes, etc.).