Lesson aims

• Discuss reasons for the growth of multinational companies (MNCs).
• Examine the impact of MNCs on host countries.

Multinational companies (MNCs) are corporations that operate in at least two countries, one of which is outside the corporation's 'home' country.

Positive impacts of MNCs on host countries

• Employment opportunities
• Transfer of skills and technology
• Supply chain opportunities for local businesses
• Infrastructure developments
• More diverse and better product choices
• Government taxes and foreign currency earnings from the initial investment and from the sales of exported goods

Negative impacts of MNCs on host countries

• Limited commitment to the local workforce
• Lack of adherence to pollution control and protection of the environment.
• Demands of multinationals for local goods and services to conduct their business can drive up prices.
• Take business away from local companies or even lead to their disappearance
• Unhealthy dependence upon a single multinational, which can destabilise the local economy and make it overly vulnerable to decisions taken thousands of miles away

Case study - Milk production in Punjab

The 'white revolution' in Punjab, India, is an example of the complex relationship between multinationals and host countries. The white revolution refers to the replacement of traditional cultivation of wheat-paddy crops by dairy farming. This change was encouraged by the government, as it held the promise of improved profit margins for farmers.

The transition was accelerated by several multinationals that source milk in the region, including Nestlé, Danone, and GlaxoSmithKline. These companies have contributed to the development of milk production by providing infrastructure, like communal chilling facilities, that allow farmers with only a few cows access to refrigeration needed to conserve milk.

The development of the dairy industry in Punjab has recently become more controversial, as the region has experienced drought conditions. Raising and feeding cows requires enormous amounts of water, and farmers are using up groundwater supplies faster than they are replenished. The multinationals are working with local farmers to face up to these challenges through education and water management programs. Nonetheless, it is uncertain whether in the longer term the 'white revolution' will be seen as a positive or negative for the region.

1. Analyse the impact the white revolution may have had on farmers in Punjab.
2. Discuss the potential impact of the white revolution on multinationals’ stakeholders in the region.

Tasks

1. What is the impact of the national culture on the operations of a MNC?
2. How does globalisation impact the host countries and what is the impact of MNCs on local communities?
3. How can MNCs adjust their strategy in order to achieve growth in developing countries?
4. To what extent is it possible for outside observers to understand and evaluate the impact of multinational corporations operating in developing countries?