Role of Multinational Corporations in International

Business:

MNCs have contributed significantly to the development of world economy and

international business at large. Their contribution in international business may be
traced by looking at the following roles they play;

 Multinational Corporations provide an inflow of capital into the

developing countries: Capital mostly in form of Dollars and Material E.g.
the investment to build the factory is counted as a capital flow on the financial
account of the balance of payments. This capital investment helps the economy
develop and increase its productive capacity. This level of investment is
important for determining the level of economic growth. The inflows of capital
help to finance a current account deficit. (Foreign investment enables
developing countries to buy imports).

 Multinational corporations provide employment opportunities:

Multinational Corporations require labour in host countries hence they provide
employment opportunities to domestic people of the host countries. It is
through this employment provision that both skilled and unskilled labour force
is able to maintain reasonable level of living standards in most developing
countries.

 Multinational firms improve infrastructure development in the

economy: These corporations have managed to build improved standard
shops, roads to their premises, warehouses and other infrastructures in the
effort to make the area conducive for the operations. For example, Petra
Diamonds Ltd that is the new owner of Williamson Mine at Mwadui Shinyanga
– Tanzania. In this way the overall National infrastructure is developed,
through what the government is doing to their side and that of the
Multinational companies.
 Impart knowledge and skills: While in the implementation of these
infrastructure development, they do impart knowledge and skills to the host
country citizens through conducting staff trainings to equip them with the
relevant skill required to succeed in the operation of the company and other
project, hence it’s a benefit mostly for developing countries a chance to learn
new techniques and skills.

 Multinational Corporations (MNCs) play a leading role in

technological innovation: Research and Development investment and
patenting. By serving various markets and their size, they often benefit from
economies of scale and scope, and have a stronger financial capacity to invest
in innovation including risky innovation projects. They are in a better position
than small and local firms to attract talent, acquire sophisticated equipment,
adopt comprehensive technology management tools, and build innovation
networks with suppliers, customers, strategic partners, universities, and public
research institutes. Hence MNCs are one of the major transfers of Technology
in International Business.

 Multinational corporations are regarded as agents of

modernization and rapid growth: The Multinational corporations in most
developing counties are active and given conducive environment by the
Government to do their businesses and work hand in hand with it in the
development endeavors of these countries. Foreign investment may stimulate
spending in infrastructure by the Government through joint effort project that
benefit the host country more importantly those living within the vicinity of the
Multinational corporations, project such as roads, schemes and rural
commodity warehousing and others. When this Multinational Corporation
leaves the country, when it ceases to carry its operations due to financial and
political reasons, the structures are either sold or surrendered to the
Government for other developmental use in the case of multipurpose buildings
and storage houses hence many countries look more modern due to MNCs.
  National and International Business Relation and Integration: MNCs
recognizes the country in the international market. It creates harmonious
relation between parent company
and subsidiary countries. It recognizes exporting country to all over the world
and apart from that MNCs act as one of the factors that contribute to a better
International Relationship.

MNCs help increase the investment level and thereby the income and
employment in host country. The transnational corporations have become vehicles for
the transfer of technology, especially to the developing countries. They also kindle a
managerial revolution in the host countries through professional management and the
employment of highly sophisticated management techniques.

The MNCs enable the host countries to increase their exports and decrease their
import requirements. They work to equalize the cost of factors of production around
the world, MNCs provide an efficient means of integrating national economics and the
enormous resources of the multinational Corporations enable them to have very
efficient research and development systems. Thus they make a commendable
contribution to inventions and innovations.

MNCs also stimulate Domestic Corporation because to support their own

operations, the MNCs may encourage and assist domestic suppliers and increase
competition and break domestic monopolies. By these facts we can say Multinational
Corporations are the roots of International Business since they play an important role
in the existence of International Business.
Importance of Multinational Corporation in International
Business

First, when a multinational company forms in a country, it improves the balance of

payments as investors from different countries will start to put their money in the
home host country's market. The investment will work as a direct flow of capital from
the international market.

Also, the profits of multinational companies depend on the tax laws of the country in
most cases. As a result, it will be a good source of revenue for the domestic
government.

When the company becomes multinational, it will create products for both national
and international markets. The local population will gain a much wider choice of
goods/ services at a lower price point than the imported substitutes.

When a company becomes multinational, it is a proud moment for the company

owners, investors and the country. The presence and development of multinational
companies showcase advancements in the industry front and help the host country
build its reputation.

On the other hand, a bigger number of MNC companies list open gates for other large
corporations to set up their subsidiaries in the host country.

Economic Clout:

International production by MNCs, now numbering some 78,000 parent firms with
over 7.8 lakh foreign affiliates and an excess of inter-firm arrangements, spans
virtually all countries and economic activities, rendering it a formidable force in
today’s world economy.

The economic clout of the MNCs is indicated by the fact that the GDP of most of the
countries is smaller than the value of the annual sales turnover of the multinational
giants. The value of the annual sales of Wal-Mart Stores, the largest TNC, in 2007
was $351 billion. Only a very small number of developing countries like China,
Mexico, Brazil, Russia, Republic of Korea and India, had GNI (Gross National
Income) which was higher than this figure. There were also several developed
countries whose value of GNI was less than this.

MNCs and International Production:

The global liberalisation has paved the way for fast expansion and growth of the
MNCs. The following paragraphs excerpted from the World Investment Reports
2000 and 2002 provide some indications of the economic dominance of the
multinationals.

Evidence on the expansion of international production over the past two decades
abounds. Gross product associated with international production and foreign affiliate
sales worldwide, two measures of international production, increased faster than
global GDP and global exports, respectively. Sales of foreign affiliates are now nearly-
twice as high as global exports, and the gross product associated with international
production is about one-tenth of global GDP, compared with one-twentieth in 1982.

Employment:

In 2006, foreign affiliates of MNCs employed over 73 million people, compared to 25

million in 1990. The greater part of the increase of employment in foreign affiliates in
recent years has taken place in developing countries. A considerable share of the
increase was concentrated in East and South East Asia, in particular in China, and in
export processing zones in those regions and elsewhere. In addition, the indirect
employment effect of the TNC activities are at least equal to the direct effects and
probably much larger. The largest employment by MNCs affiliates is in China-24
million.