Diverse Effects of Multinational Organizations Worldwide - Essay Example

Due to the recent economic crisis, global free trade and fair trade is being hotly debated on several forums. Everyone knows that global free trade has advantages as well as disadvantages. Mostly it is advantageous to multinational corporations as they strive on agreements such as the NAFTA agreement, European Union, SAARC, AFTA, etc. But the thing to consider is which outweighs the other. The advantages multinational corporations bring to economies, is it worth it. Is it really a win-win situation for all and does it benefit everyone or are these free trade agreements and these MNC’s money hungry conglomerates that destroy nations and economies at their will. That is exactly what we will be discussing in this paper. Let us first see what a MNC really is. According to D. H. Robertson's “Multinational corporations are a substitute for the market as a method of organizing international exchange. They are islands of conscious power in an ocean of unconscious cooperation” (Hymer,S. 1994). They are powerful organizations whose power commands most countries and governments. Now my question is that how can that be a wonderful thing, when there is no one to protect you interests. It in layman term means ‘survival of the fittest’. But what happens to those who don’t have the strength that others have. Well they are doomed. In the long term as well as short term. So is that a good thing. If you are one of the weak would you be happy about this? According to Margaret House “Things may be cheaper over the hill, but there is a cost to the community in buying over there, instead of here.” (House, n.a). In this research paper I am going to outline, as stated by Margaret House, the costs MNC’s incurs for Developed/Advanced nations and Developing/Underdeveloped nation. I am going to outline the implications MNC’s has on the world as a whole. First let us look at the terms Developed/Advanced nations and Developing/Underdeveloped nations. Developed countries are those nations having an elevated level of development in regards to GDP, Industrialization, Human development index, etc. In other words countries which are economic super powers like the Japan, United States in North America, Canada, Australia, New Zealand, most of Europe, etc. (United Nations, 2009). On the other hand developing economies are nations that posses low levels of material well being. Countries such as Bangladesh, Pakistan, India, Nepal, Mongolia, Zimbabwe, Mexico, etc. (United Nations, 2009). Now moving on to the diverse effects MNC’s is bound to have. First let us see what effect MNC’s will most definitely have the on jobs in developed economies. As it is well known that the cost of living in developed countries is much higher than that in developing nations, the wage rate are high as well. So how does this factor create a negative impact. It’s simple. Why would an organization pay high wages when they can get their work done by paying lower wages. When free trade is put into motion, more and more MNC’s, to become more competitive shift their businesses to countries where the wage rates are low. This in turn will cause a negative influence on the developed nations. More and more operations shifting overseas means the operations will close in the domestic economy (developed countries) which will lead to less job opportunities and higher unemployment. Jobs are outsourced to countries where wage rate is low. This can be seen when most telesales marketing and related operations were outsourced from the US, UK and Australia to call centers located in India, Pakistan, Bangladesh, etc. Harold Meyerson who is Washington Post columnist, wrote "While corporate profits soar, individual wages stagnate, held at least partly in check by the brave new fact of off shoring -- that millions of Americans' jobs can be performed at a fraction of the cost in developing nations near and far." (Meyerson, 2007) This is exactly what happened with the US when NAFTA was erected. NAFTA stands for North America Free Trade Agreement, which “is an agreement signed by the governments of the United States, Canada and Mexico creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. Its main aim was to have no barriers of trade between these three nations and has become one of the largest free trade zones in the world” (NAFTA, 2009). The effect of NAFTA, was the mass relocation of U.S. manufacturing plants to Mexico. MNC’s such as GM Motors, Chrysler, etc shifted to Mexico, to reduce payroll costs - wages, benefits and insurance. As a result, millions of American jobs were lost. Manufacturing plants in Mexico pay workers a fraction of what they had to pay workers in America. Companies also avoided costly regulation standard requirements that were imposed by the America. Since 1994, production that supported 879,280 US jobs were moved to Mexico where labor costs are lower. Between 1994 to 2007, a period which includes the expansion of several additional multi-national organizations, manufacturing employment in the U.S. declined by 3.65 million (Jones, Knue, Meyer, Dell, & Shaw, 2005). Many economists would say that this is not true. Their argument is that even if jobs are lost due to MNC’s taking advantages of free trade agreements, many are created. However it is not so. According to an article published by Southern Center for International Studies, “Clearly, combination of MNCs and free trade agreements cause dislocations, and attendant ripple effects, in an economy, even if they create a bigger economic pie.” (SCIS, 2001) Now we will look at the environmental issues associated with MNC’s. Businesses in countries such as Japan, where they have economic power but no natural resources what so ever, would be keen to shift to natural resource rich nations. In the long run this can be devastating for economies. It will be more of a case of use and dispose. Huge conglomerates would open production in countries that allows use of natural resources and where pollution and environmental protection legislations are not that strong. Once non-renewable resources are all used up the companies would move on to other countries, devouring the oh-so precious necessity. This will needlessly destroy the environment as well as kill animals causing increased health issues, pollution and will result in havoc. Several examples are present. As Australia has strict laws regarding environmental issues and labor protection, the Australian-based Rio Tinto group, a global mining company, has been opening up its operations in various developing countries. According to a report in August 2007, the media of Malaysia informed that “Rio Tinto and Cahya Mata Sarawak (CMS), a Malaysian conglomerate, had signed a pact to jointly build an aluminum smelter in Sarawak.” The environmental hazards this kind of venture produces is enormous. Rio Tinto also opened “The Kelian gold mine, in a once-remote area of tropical rainforest in Kalimantan and in West Papua (Indonesia) opened several mines.” Many cases have been reported against the mining giant regarding its operations leading to destruction of the ecosystem which led to deforestation, pollution, deaths of animals and human alike, etc. (ALIRAN, 2008). Another perfect example is that of Royal Dutch Shell, a huge oil and petroleum conglomerate. This MNC has caused havock in Nigeria and the African Delta as their operations have caused massive pollution and health problem. Other than that they have also been responsible for human rights issues as such conglomerates are very influential on developing nation’s governments and policies. (Matheson, Ross, & Martinez, n.a) Canada is another example. In 1999, a Santa Barbara, California’s SBU named Sun Belt Water Inc, filed an Adjudication Claim in regards to Section 11 with the NAFTA demanding $105,000,000 as a consequence of Canada's ban on export of huge amounts of water through tanker, a decision on part of Canada which had destroyed Sun Belt’s commerce endeavor. “The claim sent shock waves through Canadian governments that scrambled to update water legislation and remains unresolved.” (Sun Belt Water Inc, n.a) Another example present in Canada is of an American conglomerate. In 1996, a petrol chemical addition named MMT, was introduced by an American MNC in America. During those times, the government of Canada had put a ban on such importations. The American organization filed an Adjudication Claim in regards to Section 11 for US$201 million (Appleton & Associates International Lawyers, 2000). The MNC disputed that their chemical addition was not decisively associated to health hazards, and the ban was detrimental to the firm. A finding was put into motion that the restriction was actually in violation of the Agreement on Internal Trade (Manitoba, 1998), the government revoked the prohibition alongside settling with the MNC for US$13 million (Foreign Affairs and International Trade Canada, n.a). “Studies by Canadian researchers and the U.S. Environmental Protection Agency cite studies that include possible nerve damage (Kerr, 2004).” There are many examples present worldwide regarding how MNC’s disrupts the environment. MNC’s could compel nations to reduce their labor, environmental or other regulations and policies so that they are more competitive. Also, such policies can be acknowledged as wrong trade procedure by local or global groups as in the case of Canada (SCIS, 2001). Now let us look at what effect MNC’s has on other commerce. Poor nations have disputed time and again that their “infant industries” need protection so that they are able to get off the ground in the first place. If these weak nations have industries which are quite fresh then these organizations would have to struggle an immense deal against competition brought forword by international MNC’s and might ultimately be washed out. However if they were protected then there is a great possibility that in the near future such organizations will gain “Comparative Advantage.” A lot of economists agree seeing this as a valid argument, (SCIS, 2001). Another concern of major industries is the dumping factor. When MNC exists, dumping of goods in economies can take place. Countries with surplus products produced by MNC’s due to economies of scale might dump the goods produces at very cheap prices (usually below cost) on the international markets. This will have negative influence in the market of country in which dumping of goods is taking place. This leads to displacement of jobs, disappearance of industries, unemployment and many more adverse effects. We can look at the case of the European Union. The European Union sold food surpluses that it got from the “Common Agricultural Policy” at extremely low charge on the international markets. This led to a lot of problems for the world’s cultivators as they witnessed an immense reduction in market prices. In Senegal Italian tomato concentrates took over the regional processing of tomatoes, on the other hand in Czech Republic meat of pig was dumped by the EU, etc advocates how dumping disrupts growth and opportunities in developing nations (Eurp Step Corporation, 1999). How can the people claim that Multinational organizations are in the best interest of everyone when it has so many diverse effects. I would like to bring to your attention some statistics regarding poverty caused by MNC’s. MNC’s has added to the occurrence of neediness and poverty, alongside it has lowered the living standards. The impact felt by employees in nations like Indonesia, India and China has been brutal, with countless cases of starvation earnings, slave-labor hours, child labour and unsafe working conditions. Statistical evidence shows that such conglomerates (John Player Group, Rio Tinto Group, etc) harms the ecology of the marketplace and have negative effects on poor countries. Not only harming the ecology, multinational organizations have a very diverse effect on the culture of different countries and regions. Each nation has its own distinctive features in regards to culture. Their traditions, practices, social norms, etc differ from each other. But multinational organizations and the operations they carry out almost always brings standardization in cultural norms. Cultural norms of a nation can and usually is implanted in the culture of another nation. This can be through marketing practices that the organization implements or even through the product they launch, ideas mostly taken from their home country. Management theories can also be used to implant the cultural norm of one nation into another bringing about a trend that may be followed by others. This leads to a chain reaction in which new traditions are then followed while older ones are forgotten, which in the long run changes the culture as a whole. This standardization of culture can be seen on various platforms. It was a key way the west (US, Canada, UK, etc) managed to bring a cultural revolution in the west (Asian, etc). Now whether it is food, clothing or any other product, the same products can be found whether you go in New York, Lahore, Tokyo, etc. Be it Mac Donalds, Gucci, Armani, Pizza Hut, KFC or any other conglomerate. And people have started the trend of purchasing these products rather than their own. Same can be said vice versa. We can see that Indian culture, movies, food, clothing, etc are having a great effect and are being widely used in the west. Culture is being standardized. According to Mr. Erik Schwazki, a well known and respect scholar and researcher in cultural diversity and international business claimed “If these conglomerates and multinational companies keep on their pursuit to destroy cultural diversity globally, a time will come when no one will have their own cultural identity. People from one nation will look, talk and walk the same way as any other, that is excluding skin colour. Life will become dull and the same no matter where you go. Life style will become a monotonous creature feeding on the motivation and creativity of individuals.” (Wild, Wild & Han. 2006) These are just some of the diverse effects multinationals have on the growth of nations, industries and individuals alike. Mr. Morton asserted that "MNC’s is simply a way for the very wealthy to justify using their power and wealth to make themselves even wealthier at the expense of the poor." (Morton, 1999) Do not perceive that I am stating that international trade is bad, or MNC’s are all bad. On the contrary it is extremely important to stimulate global economic growth, however it should be controlled. Fair trade is more of an important factor in giving direction to MNC’s. Protection should be given to the weak from the hold of the strong otherwise all will be destroyed and economies will tumble over like domino’s. Bibliography Akyuz, Y. (2005). The WTO Negotiations On Industrial Tariffs. In Y. Akyuz, The WTO Negotiations On Industrial Tariffs (pp. 10-13). n.a: n.a. ALIRAN. (2008, February 21). Rio Tinto. 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