A multinational is a business or an enterprise which is in serial countries and is managed from one country (home). Facilities and assets are not bound in one country but are available in other trading countries and this is also referred as Multinational Corporation. Multinational is the first concept and this involves the decentralized corporation with strong home country presence. According to Taylor, Michael & Nigel (16) the second is global and this is a situation when production is centralized to acquire cost advantage and this is when there are cheaper resources. Third is the technology of the parent corporation built from the international company. Major multinational originate from either American, Western European or Japanese and include Nike, Coca-Cola, BMW, Toshiba, and Honda.
Industrialization in the third world (Mexico)
Industrialization which is the social and economic change in transforming a country from simple subsistence farming to manufacturing has been evidenced in Mexico and this has contributed to industrial growth as compared to other developing nations. In twentieth-century, existing industries expanded and new industries emerged across the nation and this led Mexico in adopting import policies which protected their continuity, (Moore 121). Economic growth was experienced as a result of foreign trade and foreign investment and the GDP rose to seven percent per year. Increased foreign trade in Mexico became a threat to domestic manufacturers where high quality imported goods fetched low prices as compared to foreign investment which continued to grow.
In developing consumer goods industries, the government imposed high protective tariffs and other barriers to imports. As argued by Detomasi, (18-26), enhancement in industries expansion was boosted by the government through the public investment in areas like energy, agriculture, and transportation infrastructure. Increased industries contributed to the shift of employment from agriculture to industry and services. The urban population increased and the growth of urban labor force exceeded the growth rate of industrial employment leaving surplus with no option other than to take low paying service jobs.
Fluctuation in international market prices resulted to the sharp deterioration of the investment climate. According to Taylor, Michael & Nigel (134), industries exported manufactured goods and services and since international prices were not favorable as per the cost of production due to competition from other advanced nation which offered quality goods and services, capital flight intensified forcing the government to devalue the peso by 45 percent. Production of basic food stagnated in Mexico resulting the nation to a net improper of foodstuffs. In hampering the modernization and the competitiveness in Mexican industry, the government had to raise tariffs concurrently in order to shield domestic producers from foreign completion.
Availability of the advanced technology in later days created an improvement in an industry sector. Although the minimal use of technology, production of goods and services showed and improvement which generated quality products in the competing market. As a result of this growth, the effect was seen in the reduction of manpower labor. Industries could no longer acquire people without specific skills and this resulted having an alternative in subsistence sector which was not favorable to many people. The growth in the nation was influenced from the reduction in taxation and the production effort played by the man-power, (Casson 48). Industrialization in Mexico influenced the GDP as a result of increased industries which ensured there was both domestic and international satisfaction in goods and services.
Benefits of direct foreign investment (Multinational Corporation)
Multinational Corporation promotes investment irrespective of the country provided terms and conditions of the country favor investment. Business enterprise is managed effectively by another entity based in another country. According to the case study referencing Costa Rica, direct foreign investment was suitable because of the political stability and well-educated labor force, (Hoskisson 144). The 61 foreign investors interviewed indicated Costa Rika was a good place where investment was high to prosper. The skills from the laborers were one of the forces that assured quality products which automatically contributed to the great sale of goods and service in the international market. Through this direct foreign investment, the well-educated laborers acquired jobs which resulted to income hence improving the living standard.
Foreign direct investment has helped in economic development particularly in the country where the investment is made. As a result of Intel executives investing in Costa Rica, infrastructure improved successfully and these included social amenities such as schools, hospitals and banking facilities. Taylor, Michael & Nigel (184) argue that telecommunication and electricity services were installed to facilitate the development of the Intel executive plant. Infrastructure services such as roads, ports and airport which were drawbacks of Costa Rica were upgraded to another level. As it is seen in the case study for Costa Rica, direct foreign investment brings economic growth to the country invested which results to improved living standards among the workers and their family members.
Technical knowledge and resource transfer are benefits of direct foreign investment. The level of technology is transferred to other sectors by the engineers and technicians of the foreign firm in the form of tacit knowledge. This information is also transmitted informally when the workers of different firm interact.
New free trade agreement that give right multinational corporations to sue states
Countries sign the trade agreement with foreign investors to ensure there is the good relationship between the two or more parties involved. Trade barriers are reduced, import quotas and tariffs are removed and this creates a good environment for the trade of goods and services, (Detomasi 88). Proposed systems have been put in place between the United States and the European Union allowing corporations to sue governments. The foreign investor can file a case and sue the government once their actions go contrary to the free trade agreement concerning the investment terms and conditions. A system known as investor-state dispute settlement (ISDS) is granted to foreign investors by the international investment treaties and free trade deal as an activation right in suing the government.
According to Hoskisson, (133-138) investors use this system (ISDS) not only as the tool to sue for compensation but over a huge government measures. These includes social and environmental regulations which affect their rights. An example of the practice is in 2009 where Vattenfall, the Swedish energy giant sued compensation of 1.4 billion US dollars against the Federal Republic of Germany. This is a prime example to show how powerful international legal system is and protects foreign investors in developing nations.
The negative impact to the state is the adverse working conditions. In underdeveloped countries, foreign investors tend to take advantage and cut cost to gain a price advantage. Workers in these countries face low pay, substandard working environments and even forced labor. There is environmental damage since many foreign industries dispose harmful substances to the air and others are channeled to rivers. On the other hand, there is increased production of goods and services and this create a market with cheap quality commodities for citizens to buy. (Moore 98) argues that there is a competitive advantage for consumers in the market and this result into increased innovation and quality of goods and services. The increase in employment and income is evidenced which raises the living standards of the people.
Whether cooperative firms can be an alternative to the current system
Cooperatives are organizations formed by members with the aim of meeting the mutual needs. They provide a unique tool for achieving one or more economic goals in the increasingly competitive world. Cooperatives are considered useful mechanisms to manage risk for members ready to venture in different industrial areas. According to Casson (37), the important principles in a cooperative is that they are voluntary organizations open to all persons who are able to use their services and ready to accept the responsibilities of membership. Cooperatives can be an alternative to the current system and provided finances to the upcoming investors irrespective of the initial capital required. Policies put by cooperative member favor them in financing big projects that will bring revenue to the organization.
Job opportunities have been created through the investment done by cooperatives. Investment programs have facilitated members to invest in different parts of the world with the assistance from the cooperative finances, Taylor, Michael & Nigel (215). Cooperatives serving the same as other business they have been able to serve markets effectively and efficiently. An example is the marketing cooperative in the USA which deals with farm production. The investment was established in supporting and raising small-scale farmers which later advanced to be a big cooperative with international standards. It is well equipped well the required facilities in meeting the needs of the members.
Casson, Mark. Multinationals and world trade: Vertical integration and the division of labour in world industries. Routledge, 2012.
Detomasi, David. "The Multinational Corporation as a Political Actor:Varieties of CapitalismRevisited." Journal of Business Ethics 128.3 (2015): 685-700.
Hoskisson, Robert E., et al. "Emerging multinationals from MidRange economies: The influence of institutions and factor markets." Journal of Management Studies 50.7 (2013): 1295-1321.
Moore, Fiona. Transnational business cultures: Life and work in a multinational corporation. Ashgate Publishing, Ltd., 2012.
Taylor, Michael, and Nigel Thrift. Multinationals and the Restructuring of the World Economy (RLE International Business): The Geography of the Multinationals. Vol. 2. Routledge, 2013.
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