“Transnational Corporation (TNCs) have frequently brought disaster to the local communities in whose regions they invest.” Debate the validity of this claim, with supporting evidence and reasoned arguments.
TNC or also known as Multinational Corporation (MNC) is a decentralize-national company which primarily has locus of management controls over its subsidiaries in whose region they invest (Shinsato, 2005); (Stonehouse , 2000). Although many statements by Daniels, (2004) claimed that TNCs are perceived by host-country as salvation in their economic development, the pitfalls are yet to venture and catastrophe the local community eventually. Although TNC may not always viewed as catastrophes to the local community, this essay will intended to focus upon the occurrence of externalities brought by TNC in the aspect of political, economical, socio-cultural, technological and other aspects as well.
Clashes of Interest
TNC’s key decision-making over host-country’s economy triggered conflict of interest between TNC and local community as TNC has no real commitment towards local economic interest (Hill 2003, pg. 243) and tends to favour their PCN’s objectives. For instance, local community enforced MNC to provide and maintain job opportunity and at the same time, the local government urged TNC provides training to the local workforce and invest R&D activities in the host-country. On the other hand, MNC demands for reasonable tax revenues and reliefs from its subsidiaries operating in host-country (Bennett 1999, pg. 170).
Inability of both parties compromise to an agreeable point may result conflict of interests between TNC and local community, where host country failed to pursue its policy in securing its local community welfare due to insufficient leverage upon TNC decision-making (Dicken, 2009).
Practices of Bribery
According to Morimoto (2005, pg. 23), TNC engages bribery as medium to obtain favourable treatment from local government in dealing businesses. Bennett (1999, pg. 102) shared similar viewpoints of bribery as more prone to exist in developing countries which the host-country perceived “corruption” as a necessity element in a business world. As TNC depending bribery as a “bypass” ticket to eliminate red tapes in the host-country regulations and policies, this would result in distorting the market mechanisms and economic incentives.
As stated by (Bennett, 1999); (Daniels, 2004); (Morimoto, 2005), bribery activities involving pertaining government procurement contracts and approvals, business opportunities in reducing high competition with the local firms, inefficient allocation of national resources and bargaining power of inflation prices introduced by TNC are the results of host-country practices via receiving unofficial gratuities as part of the business transaction.
Such action severely tarnishes the host-country reputation globally. TNCs appearances tend to frequently cause high possibility of power abuse in business activities, which suffocates not only the government, the local community as well in getting fair allocation of resources.
Bias towards Local Linkages
In terms of suppliers, Dickens (2009) assumed TNC tends to favour on familiarize existing suppliers whom able to supply components or parts consistently. In the viewpoint of local suppliers, gaining business opportunity to become TNC’s supplier is less likely to procure. Even to the extent where if local firms were given a chance to supply materials for TNC, it only involved “low-level” of inputs.
Many reasons held by TNC in constraining the locals from become established suppliers are listed as followed: perceiving locals as unreliable, producing materials lower than the uniformed standards applied, and others. Therefore, TNC tenders partial knowledge in production in constraining local firms from producing high level of inputs to remains its...
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