Over the years, especially since the 1980s, world trade has grown tremendously. The huge discrepencies between pay, working standards and taxation in More Economically Developed Countries (MEDCs)¹ and Less Economically Developed Countries (LEDCs)² have opened oportunities for companies to trade world-wide at low cost and high profit.

What Is An MNC?

MultiNational Corporations³ are very large companies which operate in several different countries. Research and Development (R and D) is usually located in an MEDC and Production is completed in an LEDC, with a few factories in MEDCs.

The world's biggest MNCs have an annual income higher than many countries and have huge amounts of economic and political power. They are able to invest in research involving high-tech equipment and modern, efficient production, yet still trade at competitive prices.

Why Do MNCs Happen?

Within the last twenty years, the employment structure of MEDCs, such as the UK, has changed dramatically. Originally Britain was dominated by a large manufacturing⁴ base (1971:40% total employment) and a significant tertiary⁵ sector (1971:51%). Production⁶ was only 3%. By 1991 however, the tertiary sector had grown to 72%, manufacturing had declined to only 26%.

This happened because of several factors.

• The cost of labour in Britain has risen dramatically
• It is cheaper to import goods, rather than produce them in the UK
• Technology means that machines are replacing humans and less factories are needed
• Export taxation has increased

By locating in other countries, MNCs have several advantages.

Access To A Wider Market= By making products in certain areas of the world, eg the EU, foreign companies do not have to pay import tariffs.

Labour Costs are Lowered= By going global, companies can exploit the cheap labour sources around the world.

Many LEDCs encourage MNCs by offering few restrictions on them, because they bring in important capital investment to the country. This lack of restrictions means that MNCs get cheap labour, cheap land and very few rules on working environments, wages and production costs.

Is Having An MNC Good For My Country?

As with most things, there are advantages and disadvantages to having a company producing in an LEDC. These factors depend on the level of development within the host country and the policies of the corporation. Because LEDC governments are usually desperate to encourage MNCs, they will often overlook environmental or social standards in an effort to reduce overheads for the MNC. Some of these effects include:

Environmental Impacts

• Rivers may become polluted as waste is not disposed of properly, due to negligence or lack of ammenities
• Water shortages may develop as more is used for industrial needs
• Industrial plants may be built in areas of environmental quality
• Development of mineral wealth and new energy sources may take place
• Acid rain, Ozone depletion and global warming are often unconsidered by the host country

Social Impacts

• 
  Improvements in travel links (roads, airports, rail etc)
• Women may be encouraged to work, taking them from the family home
• People and industry may be located extremely close together
• Local labour receives a garanteed income
• Local labour can be bought cheaply and given less benefits (eg no need for pension)
• 
  The skills of workers are upgraded
• Health care and education may be provided for workers and their families
• 'Westernisation' of culture may take place

Economic Impacts

• Higher wages may be paid
• The host country may be offering a tax incentive to encourage industry
• Corporations provide expensive machinery and introduce modern technology
• Inward investment and foreign currency is brought to the country
• Money flows out of the country as profits are exported
• Decision making is controlled from other countries, who have little awareness of the workers
• The economic base of the host country is widened
• Highly paid positions will be taken by foreign people rather than local employees
• Products are for export rather than the domestic market
• The MNC can pull out of the country at any time, leaving a dependent host country with a sudden gap in the economy

As the above suggests, there are many advantages to having an MNC in your country, however the negative effects are serious and need to be given careful consideration. Whatever happens, MNCs get much more out of having production lines in other countries, than the host countries themselves, even if both countries are MEDCs. The impacts above show that there are good and bad outcomes for host countries, but the lack of need for commitment means that the MNC does not run a risk of losing money to the country. The labour costs are cheaper, and the company has its access to a global market.

Case Studies of MNCs

When talking about MNCs within exams or discussion, it is important to have to hand examples of companies and to know what they do. We have seen above some of the largest global corporations of the 1990s. Now we'll look at some specific companies and the ways in which they operate in a global economy.

Mars Incorporated

Mars produces a huge and varied amount of produce every year.

Snack Food: Galaxy, Bounty, Maltesers, Mars, Twix.

Acumen : Business and analytical services.

Pet Care: Pedigree, Whiskas, Kitekat, Pal, Trill.

Meals: Uncle Ben's, Dolmio, Yeomans.

Plant-care: Seramis.

Mars: Electronics International (electronic payment system).

Mars is still privately owned by the Mars family. This is quite rare now.

They have headquarters in The USA, but more than eighty locations in more than thirty different countries.


Their annual turnover is over $9 billion


Sells 56% of products in Europe


Employs over 26,000 people worldwide.


Is active in: Canada, USA, Brazil, Ireland, UK, Norway, Sweden, Finland, Germany, Switzerland, Hungary, Greece, Italy, Spain, Portugal, France, Belgium, Holland, Saudi Arabia, China, Japan, Australia, Malaysia and New Zealand.

Fiat SpA.

• 
  Italian Based
• Primary industry interest is cars
• Second largest car group in Europe after Volkswagen
• Largest privately owned company in Italy
• Annual turnover of over $48 billion
• Other interests include chemicals, bioengineering and insurance services

The table shows the distribution of car plants in Europe. The majority of plants are in the south-east of each country, nearest to the Italian border. There are very few plants in the west of france, the north of Britain, Spain and Portugal; the places furthest away from Italy.

Fiat also have plants in China, USA, Africa, Australia and South America. We're going to look at Fiat's move into Brazil and thus the rest of South America. This is a typical example of an MNC expanding into an LEDC.

What Attracted Fiat To Brazil?

• The strong military government at the time of setting up reduced the risk of strikes.
• Fiat would have a garanteed market in Brazil and could supply other countries within South America.
• There is a large pool of low payment workers. They earn $7 p/h compared to £12 p/h in the UK.
• The State An Minas Gerais offered Fiat $135 million in grants and aid

What Happened When Fiat Opened Factories In Brazil in 1976?

• Increase in demand for cars in South America lead to an increase in production
• 1976- 10,000 workers 130,000 cars
  
  1980-255,000 cars
  
  1990- 1million cars
  
  1992-1.1million cars
  
  1996-1.8million cars
  
  2003-2.2million cars sold in South America
  
• 
  No strikes in fourteen years after the factory opened
• 
  In the 1990s the Brazilian government decided to expand car industry to provide long-term employment
• For every person hired, four others are waiting for a job

MNCs And The World

Globalisation is not just an economic operation. It has an impact on politics, society and culture and the environment. At the political level for example, nation-states are now unable to control the global economy. It is estimated that the 100 largest MNCs now own $1,700 billion of assets in their foreign branches. This means that they have a huge overseas impact and the scale of these activities is completely beyond the power of an individual country.

Because so much of a country's economy depends on international trading, it is now near impossible to place economic sanctions on a country without other countries suffering hugely. A perfect example of this problem was the 1998 economic crisis in South Korea. Leading global banks lost confidence in South Korea's ability to repay loans and demanded all their money back at once, almost collapsing the country's whole economy. Because South Korea was the world's twelfth largest economy, the world's richest countries organised a rescue package of $55 billion. Even so, the UK suffered as major Korean companies slowed or cancelled investments in Wales and the North East.

Many company employees in LEDCs are quickly catching up to their MEDC counterparts in terms of education and skill. This means that they are beginning to demand higher wages, better working conditions and benefits. Whilst this is good for the host country in terms of raising the country's standards, it does mean that MNCs may become disinclined to stay and may relocate to a less developed country.

The questions that arise most often in discussion about MNCs are those related to their ethical and moral obligations. Should MNCs be forced to hold the same standards in LEDCs as they would in their own countries? Currently companies must only adhere to the standards of their host country, which, as said before, may be deliberately reduced in order to lure corporations. However, if customers find out about poor working standards and decide to complain, companies can face major repercussions from trading standards, not to mention possible boycotts by customers. A prime example of this was the company, Gap, in the 1990s. They hired workers through a contractor and were unaware that the workers were actually children working in dangerous environments and for very poor wages. Once the British public found out, Gap's sales fell drastically until they altered their production policies. They now adhere to trading standards and have no problems.

Some Key Terms For Writing About MNCs and Globalisation

• MNC: MultiNational Corporation
  
• MEDC: More Economically Developed Country
  
• LEDC: Less Economically Developed Country
  
• NIC: Newly Industrialised Country
  
• Global Economy: the worldwide economy
  
• Foreign Direct Investment(FDI): investment from overseas

Useful Links

• Beyond McDonalds
• International Labour Organisation
• MNC Myths And Facts
• MNCs: Predators or Allies?
• 
  FDI and the Multinational Corporation:
  New Theories and Evidence
• 
  MNCs and Human Rights (PDF file)