Reliance upon multinational investment an inappropriate development strategy for developing countries
However, conflict of interest usually occurs when multinationals, seeking profit maximisation, vigorously follows its corporate agenda such as increasing market share, gaining a high rate of return on capital, ensuring its future competitiveness, instead of assisting the local economy in achieving both social and economic development. This leads to a situation where corporations and local authorities start having diverging opinions on very pertinent issues (Birkinshaw, 1999, p.159).
Movements that campaigned for workers rights during the 1990s focused on the negative impacts of globalisation that workers experienced in developing countries. Critics argue that proliferation of multinationals has led to an international crisis that has resulted to unprecedented rise in exploitation of workers (Ali, 2007, p.109). Powerful corporation which boost of revenues that surpasses the gross domestic product (GDP) of most countries are in a position of relocating rapidly in other countries in search for higher profits after exploiting the host country. The rise of the global economy, liberalisation of free-markets and capitalism has given multinationals a competitive edge compared to developing countries in relation to economic power (Tong, Reuer, 2007, p.36). Developing nations that draw foreign direct investment such as factories and industries usually allow the multinationals to operate within their borders while they exploit their employees with a minimal living wage.
The negative impact of globalisation on the less developed economies has ushered a period of advocacy that focus on workers rights. Anti-sweat movements grew as a result of mobilisation of companies in a global economy and the exploitative working environment in global factories (Polack, 2004, p.331). On one hand, globalisation of the economy has led to exploitation of workers while on the other hand, socio-political globalisation has created a momentum for activist of human rights dealing with sweat shop to propel international awareness of the poor and harsh working conditions that employees are subjected to (Ali, 2002, p.19). The multinational companies are profit minded looking for cheap human labor while exploiting and misusing workers rights. This implies that the operation of multinationals creates a callous environment for workers in developing countries.
Companies that sell processed food have become universal and people assume that they better their living conditions. Globalisation makes foreign corporations to promote consumerism. Fast food corporations such as KFC and McDonalds in less developed countries deal with alternative foods which are ready for consumption. However, people ignore the negative consequences that are associated with consumerism. Obesity among adults is on the rise and its a leading cause of cardiovascular diseases as well as cancer (Ganeshan, 2002, p.26). Therefore, fast food companies are not only making life easier, but they are making life miserable and death easier in developing nations. In addition, people say that multinationals mitigates poverty and uplifts the living standards of people. Liberalisation of the economy and opening of borders for free trade, multinational companies dump cheap goods in developing nations thus exploiting local manufacturers and disrupting living conditions of people (Karger, Shannon, 2007, p.24).
Multinational have excess capital and modern technology that is possible to produce goods cheaply thus bringing stiff competition to local producers. Moreover, they use local resources such as human power, natural resources and infrastructure to their own benefit. For example, making furniture leads to exploitation of forests thus destroying the natural environment and affecting local producers of furniture. Lack of protection of workers rights has made multinational corporations to exploit its employees. These companies have the ability of enticing workers to work for many hours and endure harsh conditions by offering them enough salary (Budhwar, Debrah, 2001, p.62). Although critics argue that when an employee consents, the issue of exploitation does not apply, resignation can lead to starvation, taking into consideration that jobs are hard to come by.
MNCs contribute to uneven development position where by international exchange is not equal and tends to favour a certain country over another. Moreover, certain workers (highly skilled) are favoured over others (low skilled). With time, the gap between the two groups widens leading to inequality. In the past, colonialism and the current multinationals are the institutions that systematically exploit the developing countries. According to the Marxist-Leninist ideology, international capitalism provokes conflict, expansionary, imperialistic and is inherently unstable (Kagan, Axelrad, 2000, p.16). At the long run, the system becomes destructive for developing countries since they are not in a position to compete with multinationals.
Structuralists classify the world into two groups made up of the developed nations who are industrialised and proficient in technology and the under-developed who are low-tech, overpopulated and agrarian. International trade and multinationals widens this gap where the developed nations import raw materials from the undeveloped and export goods that are technologically enhanced and manufactured. The terms of trade favour the developed nations at the expense of the less developed. Moreover, technology that is exported to developing countries is limited to production of raw materials and textiles that is usually exported to developed nations (John, 1996, p.56). The imported technology increases efficiency in production of raw materials leading to loss of employment opportunities in this sector.
As the level of technology is improved, MNCs hire the skilled personnel and discard the unskilled leading to increased poverty among the unskilled. Issues that concern imperfect market structures, immobility of production factors, and low rate of domestic saving lead to low wage rates and high unemployment (Carl, 1996, p.45). Multinationals competes in the demand for local capital which slows and impedes capital formation in the domestic economy (Anderson, 2001, p.71). Reliance on MNCs slows the growth of local companies and technologies and leads to the introduction of technologies that are not appropriate (that are capital intensive instead of labour intensive). Moreover, they distorts the labour market by paying higher wages compared to local companies, and makes the host country to rely on foreign capital leading to a situation where the government gives them undue political credibility.
The low cost labour services in host nation makes multinationals to outsource goods from foreign countries. Employees in the manufacturing sector are laid off and they join the service sector which has low salaries and benefits. This has lead to the deterioration of the lives of the middle class citizens thus contributing largely to economic inequality in the host country. This means that people in the middle class are forced into low class due to layoffs (Besworth, 1993, p.11). In addition, those in the low class find it hard to climb from poverty due to conditions that have been initiated by the corporations.
Multinationals have been vigorously advancing their corporate mission in search for higher profits which they often repatriate to their parent company. Host countries view this as exploitation since the limited foreign exchange is drained by these corporations. In addition, MNCs have been known to patent their discoveries and they rarely share them with local companies (Lehman, Moore, 1992, p.28). This implies that the host country does not benefit despite the fact that research is done using local resources and local infrastructure. A research policy that a multinational undertakes and the strategic direction they want it to follow may not coincide with the interest and needs of the developing country (Shenkar, 2007, p.50). Research may be intended for the benefit of the mother country while the host country does not benefit form the findings of the study.
In conclusion, increased globalisation has brought many challenges that have affected the progress of less developed nations. The existence of multinational corporations in developing countries contributes to many setbacks which people overlook. As the developed countries exploit the resources of the developing nations, the current form of globalisation must be evaluated, and developing nations must release themselves from the exploiting grasp of MNCs, if they are to experience real growth.