Do TNCs help more or harm more

Topics: United Nations, Economics, Developing country Pages: 7 (1393 words) Published: September 18, 2014
Han Yuh Ding A0110466N
Do Trans-national Corporations Help More or Harm More?

“Globalization” is a popular term that originated in the 1980s to describe the process of increased interconnectedness among nations, through the movement of people, information, investments and goods across national borders. The presence of Trans-national Corporations (TNCs) in many economies today has sped up the process of globalization and the impacts of TNCs is a hotly debated issue now. From an economic viewpoint, TNCs bring about more benefits than negatives to host nations and I will be illustrating this in the remaining part of my essay by bringing in TNCs like Nestlé, Nike, Monsanto and Walmart, just to name a few.

One undisputed economic benefit that TNCs brings is that it creates jobs and helps to alleviate the problem of unemployment in developing countries.

TNCs actively exploit the principle of comparative advantage and often produce in a country or a region with lower costs of production input, for example, labour costs or material costs. Due to the cheaper labour costs that can be found in less economically developed countries, many TNCs choose to set up their manufacturing plants in these countries and it has opened up more jobs for the locals, especially for the low skilled workers. Nestlé, for example, operates 28 factories in the African continent today and provide direct employment to 14000 Africans and indirect employment to more than 50,000 (Nestlé, 2012). In addition, there are 70 factories and 312,828 workers in Vietnam producing apparels for Nike which can be found on their website (Nike, 2013). These TNCs provide low-skilled workers with job opportunities, a steady source of income and helps to alleviate part of the high unemployment rate that are faced by developing countries. It is found in a 2012 United Nation Conference on Trade And Development (UNCTAD) report that “foreign affiliates of TNCs employed 69 million workers” as of 2011 and majority of it comes from developing countries(United Nations Conference on Trade and Development, 2012).

However, as the old cliché ‘there are always 2 sides to a coin’ goes, there are some economists who criticize TNCs for threatening the livelihood of locals because of their sheer size or huge market power at times.

TNCs are big corporations who are able to reap economies of scale in some industries and produce at a lower cost, which can potentially price their direct local competitors (individuals or firms) out of the market. Walmart, for example, has put many small local grocery stores out of business because of their inability to compete with the low prices that they have to offer. In a paper published by Professor Kenneth Stone who teaches Economics at Iowa State University, it was found that the retail trade of some small towns could decrease significantly by half within ten years of a Walmart store opening (Stone, 1997). In addition, there also exist TNCs who dominate the market because of their huge market power and their actions in return can have irrevocable damage on the livelihood of locals who depend on their products. One clear example is Monsanto, who monopolizes the Genetically Modified (GM) seeds with a market share of 90% and has brought harm to many local Indian farmers. Due to Monsanto’s dominance in the GM seed market, they were able to set their Bt cotton seeds, which many local Indian farmers are highly dependent on, at a high price. However, the seeds did not thrive well in India’s climate, and many farmers took their own lives because of the debts that they have incurred. Furthermore, the monopolization of Monsanto has made it impossible for the farmers to turn to other alternatives.

However, on a deeper analysis, the negative impact of threatening the livelihood of locals by TNCs can actually be curbed with proper governance. Governments can actually intervene by implementing sound economic policies if they...
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