INTRODUCTION
1.1 BACKGROUND OF THE STUDY
A multinational corporation is a company that has subsidiaries in several countries. Their decentralized structure, as well as their degree size, often allows them to overstep governmental constraints which smaller regional or national companies must observe.
Developing nations attracts multinational subsidiary operations due to number factors such as cheap labour, low taxation and less vigilance concerning workers’ rights and environmental protection. They are made to contribute to the social security net (i.e. welfare, unemployment insurance, e.t.c) other factors including low pay for woman workers, child labour, and the absence of labour unions, also combine to make the third world ripe for exploitation. The presence of multination in these countries improves overall living standards. The benefits of the relationship are most often one sided, but the economic problems facing these nations makes it difficult for them to be picky about their investor. Firms become multinational corporations when they perceive advantages to establishing production and other activities in foreign locations. Firms globalize their activities in foreign locations. Firms globalize their activities both to supply their home country market move cheaply and to serve foreign markets more directly. Keeping foreign activities within the corporate structure lets firms avoid cost inherent in arm’s length dealings with separated entities while utilizing their own firm specific knowledge such as advanced production techniques. By internalizing what would otherwise by cross-boarder transaction multinationals can bridge the information obstacles that often hinder trade. For example, they may be able to move carefully monitor product quality or worker conditions in factories they own than in those of contractors, or adapt the composition of output more quickly to change in market condition. Improvements in information technology have reduced the impediments to exerting corporation control across boarders. These advances have combined in recent years with an increased openness on the part of government to foreign multination, as the economic benefits of a foreign presence to the host country have become more widely recognized. These benefits include the increased investment and the associated jobs and income that the multinational firm brings, as well as technological transfer and improved productivity. The role of multinationals in spreading industry best practices is likely to be especially important services, many of which are not easily traded across national boundaries.
Evidence of the heightened role of multinationals can be seen in the quickened pace of Foreign Direct Investment (FDI) in recent years in 1991 FDI flows both in and out of other European country development (OECD), reached regard level; over 2.5 percent (%) of their combined gross domestic product (GDP) for in flow and 3.0 percent for outflow. Most of foreign direct investment is between developed countries, since 1982, 75% (percent) of FDI out flow from OECD countries have gone to other OECD members. SOURCE: United Nation Multinational Corporation in world development New York (2000).
Despite the efforts of the developing countries and international organizations or the economic activities of Trans-National Corporations (TNCs), developing countries have remained poor and the progress in development is marginal. There are legion of possible causes that might hinder development or result in underdevelopment in the Third World and many scientific studies tried to determine these causes for deadlock in development. The current public and scientific attention has focused on transnational corporations, the major players in the world economy, as possible source of delayed development or even underdevelopment (while other opinions claim the opposite).
However, this interest is not particularly new. Since the early 1970s various research projects focused their analysis on the relationship between FDI - a measure for the activity by and presence of TNCs - in developing countries and the economic development of these poor host countries. The findings of these analyses are quite contradicting. Some assume beneficial effects resulting from FDI on economic development while others claim that FDI hinders economic development. Differences in these research results can be attributed to the diverging theoretical approaches, differences in data (for instance due to different data quality or differences in the composition of the sample, like varying sets of countries), diverging model setups, theory-based assumptions or the interpretation of empirical results, just to name a few.
Two dominant strains of theories pursue differing explanations for these sharply diverging long-run growth patterns. One strain argues that the answer lies in economic and political features of developing countries and the way these have changed over time in response to both world events and internal pressures. That is; that the low economic growth rate and development is home-made due to political instability, insecure property rights, and misguided economic policies (Barro and Sala-i-Martin 1995; Krugman and Obstfeld 2000). The other theoretical strain's main argument is that underdevelopment is a consequence of differential distribution of power between the Northern industrialized countries of the centre and the Southern countries of the periphery. Transnational corporations (TNCs) are seen as the major economic agents who are interested in maintaining the differences in development. The excerpt from the interview with the former Malaysian prime minister, Mahathir bin Mohamad, reflects this position in a rather generalized manner by emphasizing that TNCs are profit oriented enterprises, which are too strong for domestic enterprises to compete with and whose activities solely serve their own interests. Since the number of TNCs has been constantly increasing and the economic size of some TNCs trumps the size of whole economies, the trend towards an increasingly globalized economy is undamped. Therefore, the theoretical assumptions of development-theories regarding the role of TNCs in the world economy require continuous empirical analysis.
| Project details | Contents |
|---|---|
| Number of Pages | 84 pages |
| Chapter one | Introduction |
| Chapter two | Literature review |
| Chapter three | methodology |
| Chapter four | Data analysis |
| Chapter five | Summary,discussion & recommendations |
| Reference | Reference |
| Questionnaire | Questionnaire |
| Appendix | Appendix |
| Chapter summary | 1 to 5 chapters |
| Available document | PDF and MS-word format |
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